Deal close on $700 billion financial bailout plan

WASHINGTON (AP) -- President Bush is bringing presidential candidates Barack Obama and John McCain into negotiations on a $700 billion rescue of Wall Street as Democrats and Republicans near agreement on a bailout plan with more protections for taxpayers and new help for distressed homeowners.

Senior lawmakers and Bush administration officials have cleared away key obstacles to a deal on the unprecedented rescue, agreeing to include widely supported limits on pay packages for executives whose companies benefit.

They're still wrangling over major elements, including how to phase in the eye-popping cost -- a measure demanded by Democrats and some Republicans who want stronger congressional control over the bailout -- without spooking markets. A plan to let the government take an ownership stake in troubled companies as part of the rescue, rather than just buying bad debt, also was under intense negotiation.

A bipartisan meeting was set for Thursday to begin drafting a compromise, which top Democrats said they hoped could pass within days.

The core of the plan envisions the government buying up sour assets of shaky financial firms in a bid to keep them from going under and to stave off a potentially severe recession.

Bush acknowledged in a prime-time television address Wednesday night that the bailout would be a "tough vote" for lawmakers.

But he said failing to approve it would risk dire consequences for the economy and most Americans.

"Without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold," Bush said as he worked to resurrect the unpopular bailout package. "Our entire economy is in danger."

Bush's warning came soon after he invited Obama and McCain, one of whom will inherit the economic mess in four months, as well as key congressional leaders to a White House meeting Thursday to work on a compromise.

With the administration's original proposal considered dead in Congress, House leaders said they were making progress toward revised legislation that could be approved.

Rep. Barney Frank, D-Mass., who has led negotiations with Treasury Secretary Henry Paulson on the package, said that given the progress of the talks, the White House meeting was a distraction.

"We're going to have to interrupt a negotiating session tomorrow between the Democrats and Republicans on a bill where I think we are getting pretty close, and troop down to the White House for their photo op," said Frank, the House Financial Services Committee chairman. "I wish they'd checked with us."

Paulson and Federal Reserve Chairman Ben Bernanke have been crisscrossing Capitol Hill in recent days, shuttling between public hearings on the proposal and private meetings with lawmakers, to sell the proposal.

Obama and McCain are calling for a bipartisan effort to deal with the crisis, little more than five weeks before national elections in which the economy has emerged as the dominant theme.

"The plan that has been submitted to Congress by the Bush administration is flawed, but the effort to protect the American economy must not fail," they said in a joint statement Wednesday night. "This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe."

Presidential politics intruded, nonetheless, when McCain said earlier Wednesday he intended to return to Washington and was asking Obama to agree to delay their first debate, scheduled for Friday, to deal with the meltdown.

Obama said the debate should go ahead.

Lawmakers in both parties have objected strenuously to the rescue plan over the past two days, Republicans complaining about federal intervention in private business and Democrats pressing to tack on more conditions and help for beleaguered homeowners.

But many in both parties said they were open to legislation, although on different terms than the White House has proposed.

Some partisan sticking points remain.

Democrats are pushing to allow bankruptcy judges to rewrite mortgages to ease the burden on consumers who are facing foreclosure -- a nonstarter for Republicans.

Democrats acknowledge privately that the provision will almost certainly be dropped in the interest of a bipartisan deal. Obama told reporters it's "probably something that we shouldn't try to do in this piece of legislation."

Democrats also want any potential proceeds the government reaps from the bailout to go to a fund designed to pay for housing for poor families. Many Republicans oppose the very existence of the fund, which they say is a backdoor means of funneling money to liberal political groups.

Democratic demands that Congress be given greater authority over the bailout and that the government be required to help homeowners renegotiate their mortgages so they have lower monthly payments already have been accepted in principle.

Under the bailout bill, which will let the government buy huge amounts of toxic mortgage-related assets, "we're now the biggest mortgage holder in town, and we can do serious foreclosure avoidance," Frank said.

Congress, Bush team agree on some bailout terms

WASHINGTON (AP) -- Scrambling for a swift deal on the $700 billion bailout for failing financial firms, key Democrats and Bush administration officials agreed Monday to include mortgage help for beleaguered homeowners but wrangled over other issues, including "golden parachutes" for executives who benefit from the unprecedented rescue.







Democrats demanded that the measure limit pay packages for executives of companies helped by the biggest financial rescue since the Great Depression. The administration was balking at that, and also at a proposal by Democrats to let judges rewrite mortgages to lower bankrupt homeowners' monthly payments.

President Bush prodded Congress during the day to pass the rescue plan quickly, declaring, "The whole world is watching."

Rep. Barney Frank, the House Financial Services Committee chairman, said the administration essentially had forced Congress to the negotiating table by creating an expectation in financial markets that a massive bailout was on the way.





"By the declaration that they made, by sending this proposal, I think we have to recognize the reality that we don't have a choice now of debating whether this is a good or a bad thing," said Frank, D-Mass, who was leading negotiations with Treasury Secretary Henry Paulson.

"We have gotten closer," Frank said, but "We're not there yet."

Congressional aides said the House could act on a bailout bill as early as Wednesday, but leaders emerged from a closed-door meeting late Monday with no firm timetable for action.





House Speaker Nancy Pelosi, D-Calif., said only that leaders were working to give the markets confidence that "this legislation will pass, and it will pass soon."

However, Wall Street wasn't comforted by the progress of the talks. The Dow Jones industrials plummeted 372 points, oil prices soared $25 a barrel at one point and gold prices surged anew as investors searched for a safe place to park their money. And despite encouraging talk on Capitol Hill, lawmakers on both the right and left were already assailing the deal-in-progress.

The emergency legislation would give the government broad power to buy up devalued assets from troubled financial firms in a bid to unlock the flow of credit and stabilize badly shaken markets in the United States and around the globe.

In one expansion of its original proposal, the administration is asking for broad power to buy up virtually any kind of bad asset -- including credit card debt or car loans -- from any financial institution in the U.S. or abroad in order to stabilize markets.

Sen. Chris Dodd, D-Conn., the Banking Committee chairman, has proposed granting that request; Frank said he was working to limit the bailout to mortgage-related investments.





Differences remained with the administration on Democrats' proposal that the government take an ownership stake in the troubled companies it bails out so that taxpayers could benefit from future profits. Frank said Paulson had accepted the idea in principle, but several staff aides at work on the plan said there was no agreement yet on how the concept would work.

Frank said he and Paulson had agreed to create a congressional oversight board as part of the bailout and to mandate that the government come up with a plan to avoid foreclosures on any mortgages it acquires in the rescue. A government official with knowledge of the talks confirmed the administration backs those provisions.

As for tottering financial firms, there still were divisions on which would be helped and what kind of assets the government could buy as part of the bailout.

And in a fresh sign of a challenging road ahead, Sen. Richard C. Shelby of Alabama, the top Banking Committee Republican, blasted the emerging plan as "neither workable nor comprehensive."

"In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted and may actually cause the government to revert to an inadequate strategy of ad hoc bailouts," Shelby said.

Lawmakers on both extremes of the political spectrum assailed the plan as a massive, poorly conceived bailout. Conservative House Republicans and liberal House Democrats both and huddled privately to express their concerns.

A partisan battle was brewing over the bankruptcy provision for homeowners' mortgage payments, a key Democratic demand.

"We'll see how hard they fight -- it's something we care about," Frank said.

Lawmakers in both parties appeared to be coalescing around the idea that executive compensation limits should be part of the bailout, although Paulson is said to be concerned that such curbs would discourage companies from participating.





"Some element of that has to be in this package," said Sen. Mel Martinez, R-Fla.

Investors were uncertain just how successful the administration's plan would be in unfreezing credit markets, which many businesses depend on to fund day-to-day operations, and for propping up the still-weak housing market.

Bush said, "Obviously, there will be differences over some details, and we will have to work through them. That is an understandable part of the policymaking process." But he also said, "It would not be understandable if members of Congress sought to use this emergency legislation to pass unrelated provisions, or to insist on provisions that would undermine the effectiveness of the plan."

Treasury spokeswoman Brookly McLaughlin said, "We are confident that we can get a bill done this week."

The fast-moving negotiations between the administration and Congress unfolded a day after the government approved a request by investment houses Goldman Sachs and Morgan Stanley to change their status to bank holding companies.

That change will allow the two venerable institutions to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both institutions. It will also grant them permanent access to emergency loans supplied by the Fed rather than the temporary loan status they have had since last March when the Fed moved to prop up investment banks following the forced sale of Bear Stearns.