By David M. Herszenhorn and Carl Hulse
c.2008 New York Times News Service
WASHINGTON — Congressional leaders and the Bush administration reached a tentative agreement early today on what may become the largest financial bailout in American history, authorizing the Treasury to purchase $700 billion in troubled debt from ailing firms in an extraordinary intervention to prevent widespread economic collapse.
Officials said congressional staff members would work through the night to finalize the language of the agreement and draft a bill, and that the bill would probably be brought to the House floor on Monday.
The bill includes pay limits for executives whose firms seek help, aides said. And it requires the government to use its new role as owner of distressed mortgage-backed securities to make more aggressive efforts to prevent home foreclosures. In some cases, the government would receive an equity stake in companies that seek aid, allowing taxpayers to profit should the rescue plan work and the private firms flourish in the months and years ahead.
The White House also agreed to strict oversight of the program by a congressional panel and to conflict-of-interest rules for firms hired by the Treasury to help run the program.
As they approached a final deal, both sides appeared to have given up a number of contentious proposals, including a change in the bankruptcy laws sought by some Democrats to give judges the authority to modify the terms of first mortgages and a temporary suspension of mark-to-market accounting rules sought by some Republicans.
Congressional leaders and the treasury secretary, Henry M. Paulson Jr. emerged from behind closed doors at 12:30 a.m. today morning, after two days of protracted meetings.
”We have made great progress toward a deal, which will work and be effective in the marketplace,“ Paulson said at a news conference in Statuary Hall in the Capitol.
A senior administration official, who participated in the talks, said the deal was effectively done and staff members would work overnight to work out technical details and finalize legislative language. ”I know of no unresolved open issues for principals.“
In the final hours of negotiations, Democratic lawmakers were carrying pages of the bill by hand, back and forth from House Speaker Nancy Pelosi’s office, where the Democrats were encamped, to Paulson and other Republicans in the offices of Rep. John A. Boehner of Ohio, the House minority leader.
At the same time, a series of phone calls was taking place, including conversations between Pelosi and President Bush, between Paulson and both presidential candidates — Sen. John McCain, the Republican nominee, Sen. Barack Obama, the Democratic candidate — and between the two candidates and top lawmakers.
In announcing a tentative agreement, lawmakers and the administration achieved their goal of sending a reassuring message ahead of Monday’s opening of the Asian financial markets. Lawmakers were also anxious to adjourn and return home for the fall campaign season.
Officials said they had agreed to include a proposal by House Republicans for an alternative that gives the Treasury authority to issue government insurance for troubled financial instruments as a way of reducing the amount of taxpayer money spent up front on the rescue effort. Paulson had expressed little interest in that plan, but its final details were not immediately available.
The day’s intense effort that followed a tumultuous week, including a contentious meeting at the White House with President Bush and the two presidential candidates.
But their work was hardly over. Even before finalizing the accord with the White House, congressional leaders who want the bailout to pass with a solid bipartisan majority had begun to anxiously court votes, mindful of the difficulty they could face in a high-stakes election year. Public opinion polls show the bailout plan to be deeply unpopular. Conservative Republicans have denounced the plan as an affront to free market capitalism, while some liberal Democrats criticizing it as a giveaway to Wall Street.
Aides described a tense meeting on Saturday that included Sen. Max Baucus, Democrat of Montana, shouting at Paulson about executive pay caps. Outside, stunned tourists visiting the Capitol watched as camera operators shoved one another to get footage of lawmakers talking outside of the meeting room. At one point, when too much information was leaking out, staff members’ BlackBerrys were confiscated and collected in a trash bin.
While congressional Republicans sent only their chief negotiators, Rep. Roy Blunt of Missouri and Sen. Judd Gregg of New Hampshire, at least nine Democrats with competing priorities piled into the meeting, surprising the Republicans but apparently not unsettling them.
The centerpiece of the rescue effort is a plan for the government to purchase up to $700 billion in troubled assets from financial firms as a way to free their balance sheets of bad debts and to help restore a healthy flow of credit through the economy. It could become the largest government bailout in the nation’s history.
Republicans, under pressure from Democrats to deliver 70 to 100 votes from their side, were scouring the ranks and focusing on the two dozen Republicans who were retiring this year.
”It is a good number,“ said Rep. Ray LaHood of Illinois, one of the Republicans leaving Congress this year. LaHood said he had suggested to the leadership that they convene the departing members to get them to make the case to wavering Republicans.
Both parties were also scouring the political map to identify lawmakers who face little or no opposition for re-election in November, knowing they would be more willing to vote yes.
Democratic officials said that despite having control of both chambers in Congress, they were far from having a majority sufficient to pass the measure just from their ranks. And they also warned that Democrats in potentially tough races could not be counted on to provide the votes to put the package over the top when, and if, it reaches the floor.
Republicans countered that if Democrats were truly in need of generating more support, they would have to jettison some provisions in the bill that were most objectionable to their members, particularly a provision that would direct 20 percent of any profits from the rescue plan to help create affordable housing. The Republicans want all profits returned to the Treasury.
Some lawmakers have made clear that they will not vote for the bailout plan under virtually any terms. ”I didn’t want to be in the negotiations because I object to the basic principles of this,“ said Sen. Richard C. Shelby of Alabama, the senior Republican on the banking committee who would normally be his party’s point man.
Pressed about his role, Shelby replied, ”My position is ‘No.’“
Officials, including President Bush, stepped up efforts to sell the plan to the American public, which, according to opinion polls, is deeply skeptical.
”The rescue effort we’re negotiating is not aimed at Wall Street, it is aimed at your street,“ Bush said in his weekly radio address. ”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.“
Sen. Kent Conrad, Democrat of North Dakota, in a brief speech on the Senate floor, said: ”It’s not just going to be Wall Street. The chairman of the Federal Reserve has told us if the credit lock-up continues, three million to four million Americans will lose their jobs in the next six months.“
The ultimate cost of the rescue plan to taxpayers is virtually impossible to know. Because the government would be purchasing assets of value — potentially worth much more than government will pay for them — there is even a chance the rescue effort will eventually return a profit.
Congressional Democrats had said Friday that they were willing to accept a House Republican proposal that would also give the Treasury authority to issue government insurance for troubled, mortgage-backed assets as a way of reducing the amount of taxpayer money spent up front on the rescue effort.
Paulson has expressed little interest in that plan, and congressional aides said that initial cost projections put the price tag of insurance premiums to be paid by the private firms at $1 trillion or more — a potentially staggering expense for financial institutions, many of which are already weakened.
The administration had initially requested nearly unfettered authority to run the rescue program. But in negotiations over the last week, the White House agreed to accept strict oversight of the program by an independent board, as well as a requirement that the government increase its efforts to prevent home foreclosures.