By Patrick Rucker and Glenn Somerville
WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson agreed on Wednesday that a proposed $700 billion proposal to bail out financial firms must be modified to put some limits on the paychecks of executives whose firms use it.
As a U.S. House of Representatives Financial Services Committee hearing opened, Paulson said he understood the public anger over the huge salaries that Wall Street executives have been paid, but still appealed for quick support for the package.
"This is a serious problem and I agree. We must find a way to address this in the legislation but without undermining the effectiveness of this program," he said.
Paulson's comments marked a significant retreat from his past position that imposing pay limits might make firms avoid using it and stall an effort to rid the financial system of bad mortgage-related assets.
President George W. Bush was scheduled to make a televised address at 9 p.m. EDT, further appealing to ordinary Americans to support the bailout as a necessary measure to help the broader economy rather than a financial bootstrap for reckless Wall Street executives.
While Paulson gave ground on the issue of executive pay, he offered no indication that he was willing to yield to congressional calls that the government receive an equity stake in firms that benefit from the bailout program.
Many lawmakers have argued that forcing companies to yield some equity in return for the right to offload bad assets onto the government would protect taxpayers by increasing the chances for a profit, or at least a reduced loss, when the assets were eventually resold.
"I understand the view that I have heard from many of you on both sides of the aisle, urging that the taxpayer should share in the benefits of this plan to our financial system," Paulson said. "Let me make clear -- this entire proposal is about benefiting the American people, because today's fragile financial system puts their economic well-being at risk."
Paulson and Federal Reserve Chairman Ben Bernanke have both argued that companies may shy away from participating in the program if shareholder value was diluted, undercutting the plan's effectiveness.
OPTION ON TABLE FOR MONTHS
In his testimony on Wednesday, Paulson revealed that the Treasury had been considering a bailout plan, among other options for settling markets, for months now.
"We have proposed a program to remove troubled assets from the system -- a program we analyzed internally for months, and had hoped would never be necessary," he said. "Under our proposal, we would use market mechanisms available to small banks, credit unions and thrifts across the country."
As he has said repeatedly since proposing the creation a fund to soak up bad assets from financial firms, Paulson insisted the final price tag would be much lower than the $700 billion he would be authorized to spend.
"It is an asset-purchase program and the assets which are bought and held will ultimately be resold with the proceeds coming back to the government," he said.
As he had a day earlier in testimony to the Senate Banking Committee, Paulson said he was willing to accept oversight as part of the bailout program.
"I'm not looking for extraordinary powers," he said. "We need and want oversight, transparency, protection and we've got to do it in a way in which we can be effective and get this program working."
(Reporting by Patrick Rucker and Glenn Somerville; editing by Gary Crosse)
