Lawmakers arrive at bailout deal

Associated Press

September 28, 2008

WASHINGTON - Congressional leaders and the Bush administration have reached a tentative deal on a bailout of imperiled financial markets that could cost taxpayers hundreds of billions of dollars.

The House could vote on it today and the Senate tomorrow. House Speaker Nancy Pelosi announced the accord early this morning and said it still has to be put on paper. Treasury Secretary Henry M. Paulson Jr. talked of finalizing the deal but added, "I think we're there."

The plan would spend up to $700 billion, most of it by buying deeply devalued mortgages from the housing market's collapse and other bad loans held by tottering banks and other investors.

The aim is to prevent credit from drying up and causing a meltdown of the U.S. economy.

Presidential politics again played a role in the bargaining. Republican John McCain and Democrat Barack Obama called key negotiators and portrayed themselves as helping without getting directly involved in the talks.

President Bush expressed confidence yesterday that lawmakers soon would approve a rescue plan while acknowledging that many Americans are frustrated and angry at the amount of money taxpayers are being asked to put up for covering Wall Street firms' mistakes.

The president spoke with Paulson, McCain and other Republican lawmakers during the day yesterday, said White House spokesman Tony Fratto.

Under the plan, the Treasury Department would buy deeply distressed mortgage-backed securities. The money should help troubled lenders make new loans. The government would later try to sell the discounted loan packages at the best possible price.

House Republicans were insisting that some of the money be available to insure, rather than buy, distressed mortgage-backed securities. Banks and investment firms holding such packages would pay the government for insurance against losses if the mortgages default.

Proponents say their idea would require less taxpayer spending. But the Treasury Department has said it would not pump enough money into the financial sector to make credit sufficiently available.

Another proposal would have the government receive stock warrants in return for the bailout relief, ensuring that proceeds from eventual sales of the discounted packages would return to the Treasury.

Negotiators were trying to settle on a means of limiting severance packages for executives of companies that benefit from the rescue plan. It was unclear early today where those efforts stood.

They also discussed phasing in the program's costs. For example, after the first $350 billion or so is made available, Congress could try to block later amounts if it believed the program was not working. The president presumably could veto such a move, however, requiring extra-large margins in the House and Senate to override.

House Republicans insisted on several changes to the administration's original proposal.

"We should not be bailing out Wall Street on the backs of American taxpayers," House Minority Leader John A. Boehner of Ohio told reporters at midafternoon, when Paulson and key House and Senate members took over the negotiations from their aides.

Senate Majority leader Harry Reid of Nevada said earlier that the goal was to come up with a final agreement before the Asian markets open tonight. "Everybody is waiting for this thing to tip a little bit too far," he said, so "we may not have another day." Whatever emerges "is not the proposal that we got from Secretary Paulson." But lawmakers said it would be much closer to Paulson's original plan than to the alternative offered by House Republicans several days ago.

McCain, who flew to Washington after Friday night's presidential debate in Mississippi, spent part of yesterday working the phones and "helping out as he can," aide Mark Salter said. But McCain did not enter the Capitol, where his colleagues were voting on a $634 billion spending bill that ended a ban on drilling off the Atlantic and Pacific coasts, and sent billions of dollars to the military.

McCain supports such measures. But the vote would have been difficult for him because the bill also included more than 2,000 pet spending projects worth more than $6 billion. That is the kind of pork-barrel spending that McCain has pledged to end.

Obama campaigned in North Carolina and Virginia. Aides said he placed calls to Paulson, Reid and a key House member to keep tabs on negotiations.

Both presidential candidates are trying to position themselves to take at least partial credit if an accord is reached.

Obama spokesman Tommy Vietor offered new details from Thursday's contentious White House meeting that underscored the divisions among lawmakers trying to reach an agreement.

He said Obama encouraged Paulson to work with House Republicans. Since then, Vietor said, Obama has urged negotiators to find a compromise with enough options so the Treasury secretary has the flexibility "to act in an effective manner to stem this crisis."