Leaders Wrangle Over Bailout
Treasury's $700 Billion Plan in Disarray; Republicans Push Alternative Scheme By GREG HITT and DAMIAN PALETTA
WASHINGTON -- Wrangling among the nation's top political leaders threw the Bush administration's $700 billion bailout plan into disarray late Thursday, despite a dramatic day of negotiations on Capitol Hill that seemed to promise a deal.
It was unclear if an agreement would still come together Thursday night: The emergence of a competing plan was threatening to derail a carefully crafted compromise previously taking shape.
Earlier Thursday, congressional leaders had hammered together the outline of a compromise that involved allotting the bailout money in installments. However, after a meeting at the White House -- attended by President George W. Bush, congressional leaders and the two presidential candidates -- the gathering broke without announcing a deal, despite widespread expectations that one was imminent.
One cause of the delay: opposition from House Republicans who have tried to fashion an alternative "free market" plan that, instead of relying heavily on taxpayer money, could let banks buy insurance for the troubled assets weighing down their books.
Alabama Sen. Richard Shelby, the ranking Republican on the Senate Banking Committee, left the White House meeting early and condemned the original bailout package. "I don't believe we have an agreement," he said, noting the Bush-backed package is widely opposed.
His appearance before cameras while the meeting was still under way irked the White House. Mr. Shelby himself acknowledged the tensions, saying, "I'm probably not welcome again."
Democrats could decide to go ahead with their plan without Republican support. While this would ensure passage, it would essentially saddle Democrats with responsibility for a bailout package that has stirred up strong resistance among both Democrat and Republican voters -- with elections just weeks away.
House Speaker Nancy Pelosi, a California Democrat, earlier in the week said she wouldn't push the bill without Republican support.
Republican leadership aides said as few as 30 to 40 of the 199 House Republicans could end up supporting the Bush package.
Even a temporary hitch in the process of devising a rescue plan for the financial industry, could deal a fresh blow to the markets. The Dow Jones Industrial Average rose on Thursday, partly on expectations that a bailout deal was imminent.
After the late-afternoon meeting with President Bush broke up, White House spokeswoman Dana Perino said, "Members of the administration and the Congressional leaders pledged to continue working together to finalize a bill that will address concerns and solve the problem as soon as possible."
Mr. Bush kicked off the process a week ago, proposing the original $700 billion package. In the process he left behind his oft-repeated mantra that the economy was "fundamentally" sound and instead warned that the nation faced economic calamity if lawmakers failed to act rapidly.
But his initiative has come under withering criticism from lawmakers across the political spectrum. Democrats in both chambers of Congress complained the measure would help Wall Street at the expense of Main Street, and demanded protections for taxpayers and fresh assistance for distressed homeowners.
Deep doubts were also raised by Republicans, particularly conservatives in the House. They voiced concern about the cost and the scope of the powers that would be granted the Treasury department. In a private meeting Thursday on Capitol Hill, a group of House Republicans, with the blessing of Minority Leader John Boehner (R., Ohio), urged Sen. John McCain to consider a more market-based alternative to the Bush-backed plan.
Whether or not Sen. McCain played a role in the apparent breakdown of talks couldn't be immediately determined.
Nevertheless, negotiations have taken on a new level of political tension, following Sen. McCain's decision on Wednesday to leave the campaign trail and go to Washington to help tackle the financial-bailout proposal. Democrats Thursday night were broadly blaming Sen. McCain for the bailout's troubles.
Sen. Christopher Dodd (D., Conn.) told CNN after the meeting that Democrats were blindsided by the House Republicans' proposal. "What this looked like to me was a rescue plan for John McCain," he said.
In response, Sen. McCain spokesman Tucker Bounds said, "John McCain has been very clear that he stands for a responsible bipartisan agreement to protect homeowners, taxpayers and main street business."
Both presidential candidates are staying overnight in Washington, suggesting that negotiations will continue apace tomorrow. The political and economic stakes are high, with Mr. Bush warning late Wednesday that failure to act could tilt the U.S. economy into recession.
Sen. Richard Shelby speaks to the media after the meeting between President Bush and members of Congress.
During a morning meeting on Thursday, Sen. Barack Obama called the cellphone of Sen. Dodd, the Connecticut Democrat, to take stock of the talks, according to people familiar with the matter. He spoke with Mr. Dodd and Republican Sen. Robert Bennett of Utah, who has taken a lead role in advancing the Bush initiative.
Lawmakers had emerged from that morning meeting to announce an agreement in principal on the bill. The congressional plan would provide $700 billion for Treasury buy troubled assets from financial institutions, in hopes of calming the market and easing pressures on Wall Street's balance sheets.
Treasury would have access to $250 billion immediately, with another $100 billion available if needed. Congress would be able to block release of the balance of the funds through a vote, if lawmakers are unhappy down the line with the program.
In recent days, the White House was forced to accept a series of Democratic demands as opposition mounted to the original plan. Among other things, the agreement would require companies participating in the program to impose limits on executive pay, such as restrictions on "golden parachutes," or hefty payouts for departing executives. It would also give the government authority to take what could lead to equity stakes in companies that benefit from the bailout.
In addition, an independent board would be formed to monitor the bailout. The Government Accountability Office, an investigative arm of Congress, would conduct regular audit of funds to prevent waste and fraud. The bill would also have compelled the Bush administration to take steps to help homeowners avoid foreclosure.
Before the Thursday-afternoon White House gathering, Bush aides were trying to rally support in anticipation of a close series of votes. On a conference call Thursday morning, Ed Gillespie, counselor to the president, urged financial-industry representatives to persuade Mr. Bush's shaky allies in Congress to support the bill.
"Anything you can do to help us make sure members of Congress understand the need to move this legislation," would be appreciated by the White House, he said, because legislators feel "no one ever lost a House seat for voting 'no' on a tough vote."
House Financial Services Committee Chairman, Rep. Barney Frank, center, at a news conference after a meeting on the financial crisis Thursday on Capitol Hill in Washington.
But congressional Republicans were ginning up an alternative plan that would allow banks to purchase insurance for mortgage-based assets.
In a morning meeting with Sen. McCain, the group proposed charging premiums to companies that hold mortgage-backed securities and using that money to create an insurance fund for these products. They contend doing so would bring capital back into financial markets, and not expose taxpayers to new liabilities.
"Rather than providing taxpayer-funded purchases of frozen mortgage assets, we should adopt a mortgage-insurance approach to solve the problem," says a Republican memo outlining the proposal. The House Republican proposal would also remove regulatory and other barriers that they say block private investors from pumping capital into ailing financial institutions.
Separately, Mr. Shelby presented a plan that would increase the total resources of the Federal Reserve and the Treasury Department to enable them to extend loans to banks, rather than grant new authority to buy assets.
At the afternoon meeting in the White House, President Bush led off the activity, followed by Mr. Paulson. Then he turned to the Democratic leaders, who deferred to Illinois Sen. Obama. Sen. McCain spoke later.
Ms. Perino quoted the president saying: "At the end of this debate, I'm going to turn to the Treasury secretary and ask him and Ben Bernanke, 'Does this legislation do what needs to be done to save the economy?'"
—John D. McKinnon and Elizabeth Williamson contributed to this article.
