Paulson’s popularity takes hit on Hill

Throughout his two-year tenure, Treasury Secretary Henry Paulson has attracted praise from both sides of the aisle. But times have changed.

Paulson, who was instrumental in striking deals with the Democratic-controlled Congress on the economic stimulus bill and housing reform, will be grilled this week about his $700 billion financial bailout plan.

{mosads}During a Capitol Hill tour that starts Tuesday at a Senate Banking Committee hearing, Paulson will try to explain why he thinks government should spend up to $700 billion to buy troubled financial firms’ bad mortgage assets. He will appear before the House Financial Services Committee on Wednesday and Thursday and will be joined by Federal Reserve Chairman Ben Bernanke for the hearings in both chambers.

Democrats are wary of rubberstamping a massive proposal from the Bush administration while many Republicans are questioning why taxpayers are footing the bill for the poor decisions investment firms made.

Following the rocky reign of Treasury Secretary John Snow, the Senate quickly — and unanimously — confirmed Paulson in the summer of 2006. The former Goldman Sachs executive forged good relationships with Democrats, triggering concerns from conservatives on Capitol Hill.

Following the GOP loss of Congress in 2006, Paulson became one of the most powerful people in Washington, being one of the few policymakers who had earned the respect of President Bush and the trust of Democratic leaders on Capitol Hill.

When Bush vowed to veto the housing reform bill earlier this year, Financial Services Committee Chairman Barney Frank (D-Mass.) expressed confidence that Paulson would shift the administration’s decision. Bush subsequently backed off his veto threat and signed the legislation.

In July, the last time Paulson appeared before the Senate Banking Committee, he asked for, and later received, power to provide more credit to Fannie Mae and Freddie Mac and to use government money to buy equity in the two mortgage companies. Paulson has since engineered the government’s virtual seizure of those two mortgage giants and the insurance firm AIG.

Even after the unprecedented government intervention, lawmakers had largely avoided second-guessing Paulson, who has warned that inaction would have led to the financial system’s collapse. His latest plan, however, has exacerbated worries on the Hill that Congress has already ceded too much authority to him.

Sen. Richard Shelby (R-Ala.), the ranking member on the Senate Banking Committee, said Monday that a lot of lawmakers “don’t have a lot of confidence” in the Federal Reserve and the Treasury Department.

“I believe that the Fed and Treasury could have done something as we look back six, eight months ago, a year ago when the crisis began,” Shelby said. “But they have lost the opportunity. It’s gotten out of hand.”

Sen. Jim Bunning (R-Ky.) recently called on Paulson and Bernanke to resign.

“I sincerely believe that Henry Paulson and Ben Bernanke should resign,’’ said Bunning, who sits on the Senate Banking Committee. “They have taken the free market out of the free market.’’

In an odd twist, Democrats are defending the senior Bush administration official. However, they are also expressing major concerns.

“I think we’ve got the right man in Hank Paulson in place,” said Senate Banking Committee Chairman Chris Dodd (D-Conn.) when asked about the bailout plan on CBS’s “The Early Show.”

But Dodd added that he has concerns over how Congress can hold Paulson accountable.

“To turn $700 billion over, virtually, to one individual without any kind of oversight, transparency, accountability, is just something most members, Republicans and Democrats, will have a hard time accepting,” he said.

{mospagebreak}House members weighed in forcefully on Monday.

Oversight and Government Reform Committee Chairman Henry Waxman (D-Calif.) said, “The structure of the plan appears designed to maximize returns for Wall Street and minimize protections for the taxpayer.”

“Secretary Paulson gets the key to the Treasury and will start off by borrowing $700 billion in the name of the American people and maybe more later,” said Rep. Peter DeFazio (D-Ore.) on the House floor. “And it waives all laws. All laws! No oversight; no one looking over his shoulder; no conflict-of-interest rules; not even court review.”

{mosads}Paulson this week will have to answer questions over what prompted his bold moves. Just two months ago, he said that merely having the authority to shore up Fannie Mae and Freddie Mac would serve to calm the markets and would not lead to a bailout. He likened the measures to a bazooka. “You may not have to take it out,” he said. “You’re not likely to take it out.”

More Americans oppose the $700 billion bailout plan than support it, according to a Rasmussen poll. Of the 1,000 people surveyed last weekend, 37 percent said they’re against the proposal and just 28 percent said they back it. Paulson himself received a favorability rating of 38 percent and an unfavorable rating of 41 percent.

Frank said he is concerned with the growing power Paulson and Bernanke have.

“I admire Secretary Paulson. I admire Chairman Bernanke,” Frank said Monday on CNN. “I think they are very able guys but no one individual or two or six individuals … ought to have this power. So we want to build in some oversights, some checking.”

Asked last week whether Paulson should remain in his post even if Sen. Barack Obama (D-Ill.) wins the presidency, Frank told The Hill that retaining Paulson would be “a mistake,” citing his positions on tax policies and other issues.

Other members of the House Financial Services Committee were praising him early last week, when many had viewed his decision not to rescue investment bank Lehman Brothers as a sign that the run of bailouts may have ended.

Rep. Tim Mahoney (D-Fla.), a former CEO of a brokerage firm, said last week that Paulson “has done a very good job.” Mahoney said he “applauded” Paulson’s efforts to overhaul the country’s financial regulatory structure.

Rep. Christopher Shays (R), whose Connecticut district is home to many Wall Street investors, praised Paulson for keeping Congress informed.

“He’s very upbeat; he has shown us the steps that we’ve needed to do; he’s a good listener,” Shays said. “He has the knowledge and the experience.”