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Reed defends his bailout provision at Senate hearing

10:37 AM Tue, Sep 23, 2008 | Permalink
By Jack Perry

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U.S. Sen. Jack Reed, D-R.I., right, accompanied by fellow Senate banking committee member, Sen. Charles Schumer, D-N.Y., asks a question of a witness on Capitol Hill in Washington today during the committee's hearing on the credit market turmoil.

By John E. Mulligan
Journal Washington bureau

WASHINGTON, D.C. -- Sen. Jack Reed today defended his plan to require companies to reimburse the taxpayers for their help in bailing out the financial system.

In his opening statement at a Senate hearing that will feature testimony by Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and Christopher Cox, chairman of the Securities and Exchange Commission, Reed touted his proposed system of "warrants" intended to give taxpayers a potential stake in the profits of companies that take the bailout.

"The custom on Wall Street is, if you assume the risk, you get paid to do that," the Rhode Island Democrat told Bernanke and fellow members of the Senate Committee on Banking and Urban Affairs.

Reed said it is only fair for the government -- and by extension, the taxpayer -- to get paid for taking the big risk associated with the $700 billion bailout now before the Congress.

Reed worked with colleagues over the weekend to include his reimbursement mechanism in the Senate Democratic version of the bailout bill. Read more about his proposal here.

Reed offered a rebuttal to those who have expressed concern that his warrant provision could limit the number of troubled financial companies that will be willing to accept a government bailout.

"That might not be altogether a bad thing," Reed said, alluding to the possibility that some companies might try to take advantage of the bailout for help that they do not really need.

Reed said his system of guaranteeing the taxpayer an equity stake in a bailed out company will force every such firm to make a hard-headed choice. As a condition for taking the bailout, the company would have to "surrender a warrant" for stock. Companies would have to surrender shares or else such firms could settle on "getting through on their own."