Senate Majority Leader on Economic Woes: 'No One Knows What to Do'

ABC News' Z. Byron Wolf reports from Capitol Hill: Don't look for any legislation in the near future to address the financial crisis.

Senate Majority Leader Harry Reid, asked today what new regulatory actions Congress can take, said, bluntly, "No one knows what to do. We are in new territory here. This is a different game. We're not here playing soccer, basketball or football, this is a new game and we're going to have to figure out how to do it."

A Reid spokesman said neither Treasury Secretary Paulson nor Fed Chairman Ben Bernanke offered up any suggestions for new regulatory legislation when they met with Reid in the Capitol building Tuesday night, either.

In the short run, Democrats are trying to push through a second stimulus package with funding for infrastructure improvements, renewable energy tax credits and other things. But all agree it will be up to the next President and Congress to do any re-regulation.

And its important to remember that there is no congressional oversight on the string of bailouts by the Federal Reserve of AIG, the nation's largest insurance company, or the lending giants Fannie Mae and Freddie Mac.

Moments after the press conference, on the Senate floor, Reid said he will keep the Senate in pro forma session after the Sept. 30th departure date so that committees can meet and consider the problem.

He praised Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke for their work in engineering the bailouts.

But the senate majority leader said, "the good intentions of these two decent men cannot escape the reality that the Bush administration's willful of oversight and zealous embrace of big business is responsible for the crisis we now face."

Reid went through a litany of bankruptcy protection bills aimed at shielding consumers rather than corporations that he said Republicans had blocked. With more protections for consumers and if the Bush administration had more zealously, or at all, policed the markets with the regulatory tools at their disposal, he wondered if the financial crisis would be happening at all.

And he seemed to forget how he voted on a now-controversial bill that largely de-regulated the financial services industry in 1999. It was written by Sen. Phil Gramm of Texas, who has since retired and is a McCain economic adviser. And Democrats, including Reid, opposed the bill when it first passed the Senate with 54 votes.

But they voted for an updated version of the bill in December of 1999 and President Clinton signed it. Reid and all but 7 Democrats in office at the time voted for the version of the bill that ultimately became law even though he said he opposed the bill when he spoke on the Senate floor today.Regardless, Reid said the de-regulation is less important than the current administration not enforcing remaining law.

"The bill said that one holding company could own more than one type of financial services company (e.g., insurance, investment bank, commercial bank). The law did not say that regulators should no longer regulate. The problem is regulators asleep at the switch – they haven’t enforced what’s on the books. That’s McCain’s philosophy, Bush’s philosophy," he said.

But speeches like that one drew the ire of Republicans, including Sen. Mitch McConnell, the Republican leader.

"Now more than ever is the time to rise above politics and to work together. our constituents don't want campaign speeches and hyperpartisan accusations. They want security for their homes and for their savings. They want energy security and lower costs for gas and oil, and they want protection from future tax hikes on their income. Government should be focused on bipartisan efforts to address the fundamental problems in the credit markets and must be cautious in putting taxpayer dollars at risk. and we should work together to help all Americans. "

It's worth noting that the things McConnell suggested are inherently partisan. Protection from future tax hikes does not have uniform appeal among Democrats and "lower costs for gas and oil," coming from McConnell, would likely include drilling for oil in Alaska and off-shore.

Not everyone agrees about the cause of the financial turmoil, but on Capitol Hill they are blaming politicians over the businesses that are melting down.

Sen. Jim DeMint, R-SC, an avowed free marketer, said the problems go back to the creation of public-private hybrids like Fannie Mae and Freddie Mac. He said the market is not under-regulated, but over-regulated.

"Many of the problems we're having today, particularly the problems with AIG., the failures on Wall Street, the mortgage industry, actually go back not to greed in the private market but political greed," Demint said.

"The problems that were created when this Congress and this government set up Fannie Mae and Freddie Mac as government-sponsored enter prices with the implied and now very explicit backing of the American people provided so much cheap credit to the market, securities that were bought and sold by many companies. AIG is in trouble because of these bad mortgages that originated with Fannie Mae and Freddie Mac. My point is that the problems we're having are caused by the wrong kind of government intervention. this is not a failure of free enterprise. This is a failure of government solutions and the lack of government oversight into enterprises like Fannie Mae and Freddie Mac that were started."

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