Schumer Asks Paulson: Why Do You Need $700B All at Once?

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SCHUMER ASKS PAULSON: WHY DO YOU NEED $700B ALL AT ONCE?

Senator Proposes Authorizing Huge Sum In Installments, So Congress Can Monitor Success of Asset-Buying Program

Senator Also Suggests Levying Fees on Financial Institutions To Defray Costs of Rescue

Schumer To Explore Both Ideas In Order To Minimize Taxpayer Losses

At today's Senate Banking Committee hearing, U.S. Senator Charles E. Schumer floated two new ideas that could shrink the price tag of the Bush administration's economic rescue plan: authorizing the $700 billion request in installments, rather than all at once, and defraying part of the cost by assessing fees on major financial instititons. The second proposal gained tentative acceptance from Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke at the hearing.

Schumer suggested that fees levied upon all financial market players of sufficient size--regardless of their participation in the rescue program--could be used to bankroll an account akin to the FDIC's deposit insurance fund. Schumer said he would consider pushing such a proposal this week as Congress continues to consider emergency legislation proposed by Paulson.

"One of the things I've thought about is whether we shouldn't create an insurance fund similar to the FDIC for the whole financial system," Schumer said at the hearing. "All firms over a certain size would pay, not small little community banks, but everything else. They would pay a fee, not too onerous or too large, but over time it could help to fray the cost of any losses that we might suffer."

"It's the financial system that has the trouble and the taxpayers are bailing it out, as you say, in part because it will help the taxpayers. But why do the taxpayers have to do the whole thing?" Schumer asked.

In response, Paulson indicated he was indeed thinking of ways the private sector could be tapped to defray the costs of the current proposed rescue, as well as future ones. "One way, as you mentioned, would be some kind of broader, industry-wide tax," Paulson said to Schumer.

Schumer also asked Chairman Bernanke whether he would be open to creating such a fund, and received a positive response. "Potentially, yes," Bernanke said.

In further questioning, Schumer proposed a second idea: authorizing the $700 billion requested by Paulson in installments—perhaps $150 billion at a time—rather than all at once. This idea, Schumer said, would allow the government to gauge the success of the asset-buying program before devoting more taxpayer dollars to it.

By adopting the ideas of both the fees and the phased-in authority, Schumer said the Congress could potentially come up with plan with a substantially reduced price tag, with the burden shared by Wall Street and the government.

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