An insurance plan pushed by a cadre of Republican members of the House of Representatives would mean lawmakers would have to "start from scratch" and legislation would not be approved in a timely manner. At least that's the perspective of House Financial Services Committee Chairman Barney Frank, D-Mass., about a measure introduced by Rep. Eric Cantor, R-Va., that would mostly replace the government mortgage-backed asset purchase plan with a proposal to have the federal government insure mortgage-backed securities. Frank late Friday acknowledged that Democrats could agree to some insurance plan as part of the overall deal.
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But that's where Frank and Cantor split. While Frank is still pushing a variation of the $700 billion government purchase plan introduced by Treasury Secretary Henry Paulson, albeit with a variety of conditions, Cantor is opposed to having the vast majority of mortgage-backed securities purchased by the government. Cantor contended that the immense majority of financial institutions would see their value rise significantly because they are getting a government guarantee in the form of federal insurance.
In any event, the practical outcome of this Republican-Democrat squabble could be in the other conditions being fought over on Capitol Hill. Frank acknowledged that a measure that Democrats want that would make changes to bankruptcy law and let judges adjust the terms of mortgages, didn't appear to be in the cards anymore.
"The bankruptcy remains a controversial issue, it's not a secret that [Sen. Barack] Obama isn't for it," Frank said.
Quickly, Speaker Nancy Pelosi corrected Frank: "Obama wants it to be dealt with in a separate bill."
The pressure from Cantor and conservative Republicans might not kill the basic premise of government purchases of mortgage securities, but it could very well kill some major conditions such as the bankruptcy changes Democrats are seeking. To get Cantor's insurance policy off their backs, Dems may agree to drop some things they want. - Ron Orol
Ron Orol is a Washington-based reporter for The Deal and author of Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World.
