Senator: Economy will rebound

It all comes down to confidence, Sen. Max Baucus, D-Mont., said in describing the country's potential for recovering from the ongoing global financial crisis.

And Baucus said he has confidence in the capacity for economic growth in the United States to overcome the roller-coaster markets that have seen record losses and gains over the last couple of weeks.

"We're getting ahold of this thing. There will be continued volatility but not a huge crash," Baucus said Tuesday in a meeting with the Daily Inter Lake editorial board. "The confidence factor, I think, is going to start to come back … It all comes down to confidence."

As chairman of the Senate Finance Committee, Baucus played a central role in the development of a $700 billion package aimed at helping investment firms and banks and other financial institutions, with the goal of encouraging investment and continuing credit for Main Street America.

Baucus said Congress was not in a position to do nothing.

But he said he was "stunned by the audacity and arrogance" of the original three pages of legislation submitted by Treasury Secretary Henry Paulson that requested $700 billion for Treasury to distribute.

Baucus said he was instrumental in adding taxpayer protections in the legislation, such as a provision that requires the assignment of a special inspector general to monitor the distribution of the funds.

Baucus said he went head-to-head with Paulson in adding a provision that significantly restricted the so-called "golden parachute" compensation packages that could be provided to executives who are with firms that receive financial assistance from the government.

"This was a not a grant of money - it is a loan," Baucus said, adding that American taxpayers could "come out ahead" if the loans are successful in turning troubled financial institutions around.

He cited the government bailouts of New York City and the Chrysler Corp. and its assistance in Mexico's currency crisis as examples where the Treasury recovered what it distributed.

"That's the goal here, not to let the $700 billion go down the drain," he said.

Baucus said there were many contributing factors, but the vast expansion of home mortgage lending through the government-sponsored enterprises Fannie Mae and Freddie Mac, was at the root of the financial crisis. And he conceded that Congress had a hand in that expansion.

"Some in Congress pushed for Fannie and Freddie to get much more involved" in extending risky loans, Baucus said.

"I have forever been a huge critic of Fannie and Freddy," he said, adding that the two enterprises were in a position to privatize profits and socialize losses by virtue of their government backing.

Baucus said there is no regulatory oversight of mortgage brokers, but he acknowledged the risk of Congress "overcorrecting" in establishing regulatory oversight in that sector.

Legislation known as Sarbanes-Oxley that was enacted after the Enron scandal imposed auditing and accounting reporting requirements that had unintended, harmful consequences - especially for small companies, he said.

Reporter Jim Mann may be reached at 758-4407 or by e-mail at jmann@dailyinterlake.com