Bloomberg | September 17, 2008
By James Rowley and Brian Faler

Sept. 17 (Bloomberg) -- The U.S. Congress is unlikely to pass new legislation to overhaul financial regulations this year because ``no one knows what to do,'' Senate Majority Leader Harry Reid said today.

``We are in new territory, this is a different game,'' Reid said at a briefing in Washington. Neither Federal Reserve Chairman Ben Bernanke nor Treasury Secretary Henry Paulson ``know what to do but they are trying to come up with ideas,'' Reid said.

White House spokeswoman Dana Perino said today that the administration is willing to consider a suggestion in Congress to have the U.S. buy distressed mortgages, akin to the role the Resolution Trust Corp. played in disposing of bad debts of from savings and loan associations in the late 1980s and early 1990s.

Senate Banking Committee Chairman Christopher Dodd said the Federal Reserve has the authority to act as an ``effective Resolution Trust Fund'' to buy up and dispose of bad debt stemming from the subprime mortgage crisis.

``The Fed has the authority to move in this area,'' Dodd told reporters in Washington.

Federal Reserve

The Federal Reserve Board, with support of the U.S. Treasury, invoked emergency powers to lend as much as $85 billion to American International Group Inc. to save the firm from collapse. At the start of the week, Lehman Brothers Holdings Inc. filed for bankruptcy. That followed the bailout of Bear Stearns Cos. in March, and the takeover of Fannie Mae and Freddie Mac earlier this month.

Illinois Senator Dick Durbin said in a speech on the Senate floor that President George W. Bush isn't in a position to propose regulatory overhaul legislation because he is close to leaving office ``and the Congress is not in a position to pass it.''

Congress is planning to adjourn Sept. 26 and other Democratic leaders have said they hope to avoid a post-election session.

Reid said that Paulson ``recognizes that nothing is going to be done this year.''

``It is a multitrillion dollar issue that's facing America and we can't do it on some timeline that is unrealistic.''

Martinez

Senator Mel Martinez, a Florida Republican, said that Reid's comments that no one knows what to do is ``not a way to inspire confidence or begin to turn the tide on some of this.''

Arizona Senator Jon Kyl, the Senate's No. 2 Republican, disagreed with Reid's assessment, saying ``there is a range of ideas about what could be done and what ought to be done.''

He also acknowledged a ``difference of opinion'' about what Congress should do next.

``It is fair to say it would be difficult to get a complicated proposal through the Congress at this time,'' Kyl said. ``A lot of the people who have those different ideas have expressed the view that maybe we need to see how the dust settles here before we venture off into legislating.''

Reid said the Congress would remain in a so-called pro forma session leading up to the November elections so that the Banking and Financial Services Committees could continue to look into the matter. ``The committees is where the action is anyway,'' Reid said. ``If there is a need for us to come back, we stand ready and willing to do that.''

He also called for a second economic stimulus package this year, saying if the federal government can put up billions to help companies such as American International Group, it can afford to help out struggling Americans.

Reid said lawmakers have decided to leave a proposed $25 billion loan to the auto industry out of the stimulus package, leaving that instead to a stopgap spending measure needed to fund the federal government while Congress wraps up its annual budget work.