Congressional Leaders Announce Breakthrough in Bailout Bill Negotiations
Congressional leaders and the Bush administration last night struck a historic accord to insert the government deeply into the nation's financial markets, agreeing to spend up to $700 billion to relieve Wall Street of troubled assets backed by faltering home mortgages.
Negotiators emerged from a marathon session in the Capitol about 12:30 a.m. to announce that they had reached agreement on a proposal to give Treasury Secretary Henry M. Paulson Jr. broad authority to organize one of the biggest government interventions in the private sector since the Great Depression.
Full details of the plan were not immediately available. Lawmakers said their staffs would continue working through the night to commit them to paper. Under the plan, first put forward by the Bush administration in a late-night meeting with lawmakers just 10 days ago, Paulson would be authorized to purchase mortgage-backed assets from struggling firms in hopes of easing a credit crunch that has pushed global markets to the brink of collapse.
With home prices plummeting, many of those assets are now almost worthless, and investors have lost confidence in many of the firms that hold them. That has undermined some of the biggest names on Wall Street and caused banks to stop lending money, sparking a credit crisis that threatens to deliver a devastating blow to businesses, consumers and the broader economy.
Administration officials have stressed that the ultimate cost of the bailout would be much less than $700 billion because the government would eventually sell the assets it purchased and recover most, if not all, of what it spends.
Yesterday's talks, conducted mainly in Speaker Nancy Pelosi's suite of offices on the second floor of the Capitol, were focused heavily on how to cover the cost of the program so taxpayers don't get stuck with the bill.
Democrats pressed hard for further taxpayer protections, including a fee that would be imposed on the financial services industry if after five years the government had not fully recouped its money. The proposal, which did not surface in negotiations until yesterday, would help win the support of a fiscally conservative group of House Democrats known as the Blue Dogs, an important bloc of 47 votes.
"We believe that the taxpayer should not be left holding the bag at the end of the day, and we've proposed a way to address that," said Rep. Chris Van Hollen (D-Md.), a member of House Speaker Nancy Pelosi's leadership team.
Paulson and some Republican lawmakers were said to be cool to the idea, though House Republicans also have expressed serious concerns about the cost of the program and have suggested other ideas for limiting taxpayer exposure. A House GOP plan that would allow Treasury to create a program of government insurance for some mortgages was also under discussion.
"While we do believe the Congress needs to act to avert this crisis, we also believe we should not be bailing out Wall Street on the backs of American taxpayers," House Majority Leader John A. Boehner (R-Ohio) said.
Democrats and Republicans from both chambers meeting with Paulson and other administration officials were also working to forge a compromise on a variety of other outstanding issues, including how quickly the government should make money available for the program and whether participating firms should be required to limit executive pay.
Even staunch opponents of the emerging plan said they expected it to pass.
Sen. Richard C. Shelby (R-Ala.), the senior Republican on the Senate Banking Committee, who has refused to participate in the talks, said a "critical mass" was forming behind the measure because lawmakers fear that their failure to act would cripple financial markets. The House is expected to vote on the plan as soon as today, with the Senate following as soon as Monday.
Yesterday's negotiations, which began shortly after 3 p.m., were at times tense and confusing, according to participants. At one point, a senator sought advice from investor Warren Buffett, one of the world's richest men, according to Sen. Kent Conrad (D-N.D.).
For nearly three hours in the afternoon, Conrad and other lawmakers met with Paulson around a massive table in Pelosi's conference room under an ornate portrait of Abraham Lincoln. Among lawmakers, Democrats outnumbered Republicans nine to two, an imbalance that so irritated Paulson that he called and complained to Senate Majority Leader Harry M. Reid (D-Nev.), according to three GOP sources familiar with the call.
Reid told Paulson he would not pull any of his colleagues out of the meeting. A Reid spokesman, Jim Manley, said: "If the secretary doesn't like it, that's just too bad, because he is going to need the help of each and every one of them to sell the president's plan to the Democratic caucus and the American people."
The focus on limiting taxpayer exposure may help rally support in Congress, where lawmakers have been reluctant to back the hugely expensive and unpopular bailout measure less than six weeks from the November election. But it could unnerve Wall Street, where investors are seeking the largest possible program with the fewest strings attached. They also hope lawmakers approve it before tomorrow's opening bell.
In his public testimony and private remarks, Paulson has repeatedly emphasized the need to spend $700 billion to soothe nervous markets. At that price, the government's upfront investment in the rescue package would be more expensive than the current cost of the Iraq war, which stands at about $650 billion, according to the Congressional Research Service.
But the White House and politicians on Capitol Hill have stressed that the package ultimately would cost much less because the value of the assets is likely to rise as the housing market recovers, allowing the government to earn back much of its money when it sells them, or even turn a profit.
"Many of these assets still have significant underlying value, because the vast majority of people will eventually pay off their mortgages," Bush said yesterday in his weekly radio address. "In other words, many of the assets the government would buy are likely to go up in price over time. This means that the government will be able to recoup much, if not all, of the original expenditure."
Bush attempted to address criticisms from the right and left that the plan would bail out irresponsible financiers while doing nothing for regular Americans. Echoing frequent comments by him and his aides, Bush said allowing Wall Street to collapse further would pose greater dangers to the economy, perhaps triggering a "deep and painful recession."
"The rescue effort we're negotiating is not aimed at Wall Street -- it is aimed at your street," Bush said. "And there is now widespread agreement on the major principles. We must free up the flow of credit to consumers and businesses by reducing the risk posed by troubled assets."
On Capitol Hill, Democrats, too, tried to play down the $700 billion figure. "Nobody believes that's going to be the final cost," House Majority Leader Steny Hoyer (D-Md.) told reporters.
Democratic leaders have emphasized to rank-and-file members that Paulson has told them that he could only spend about $50 billion a month on the securities purchase program. Meanwhile, they are pressing to release the money in segments -- $250 billion immediately, $100 billion later and the final $350 billion only after Congress is given a chance to object -- a move that they say will allow Congress to closely oversee how the money is spent.
All parties to the talks had agreed on at least one point early yesterday: The need for an oversight board to ensure the program is run properly. The final details of the board remained unclear last night, and most lawmakers said it was too early to know who is likely to run it.
Hoyer said that whoever oversees the bailout program must instill "confidence" in the public and must not have any conflicts of interest with the financial markets or the Treasury.
Early in the evening, negotiators were still haggling over details of other provisions, including lawmakers' demands that Treasury require any firms that participate in the bailout to ban "inappropriate or excessive" compensation for their senior managers. Democrats also want to strip certain tax deductions from companies that pay executives more than $400,000.
Negotiators also were trying to reach agreement on a plan to help troubled homeowners facing foreclosure.
After a break for dinner, the sides scattered into at least three separate groupings -- Paulson huddled in Boehner's office with other GOP leaders, Democrats in Pelosi's conference room and Pelosi in a separate suite talking with other Democrats.
Rep. Rahm Emanuel (D-Ill.) and Pelosi's chief of staff spent a couple of hours in shuttle diplomacy, frantically walking from room to room carrying sheets of paper. Conrad, the chairman of the Senate Budget Committee, said the negotiators were "shopping language" of the bill's draft versions. He and Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, also spent time in Boehner's office with Paulson.
By 11 p.m., the three groups had once again converged on Pelosi's office to strike a final deal.
Pelosi said she hoped to publish the legislation on the Internet for almost an entire day before voting, meaning a vote could come tonight or tomorrow morning.
"I would hope that the progress that we make today could bring us to that point," she told reporters early yesterday evening.
Staff writer Dan Eggen contributed to this report.