Lawmakers Reach Accord on Huge Financial Rescue
Vote on $700B Bailout Plan May Come as Early as Monday
By Lori Montgomery and Paul Kane
Washington Post Staff Writers
Sunday, September 28, 2008; 3:05 PM
Congressional leaders and the Bush administration this morning said they had struck an 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.
House and Senate negotiators from both parties emerged with Treasury Secretary Henry M. Paulson Jr. at 12:30 a.m. from a marathon session in the Capitol to announce that they had reached a tentative agreement on a proposal to give Paulson broad authority to organize one of the biggest government interventions in the private sector since the Great Depression.
Congressional aides worked through the night to assemble the package, and hoped to post it to the Internet by midday today. Meanwhile, as preparations were being made for a vote in the House tomorrow morning, the congressional caucuses were preparing their own private huddles to review the proposal. The most critical meeting, among House Republicans, was expected later this afternoon. They have been the most reluctant to support the plan to purchase the securities. House Democrats were likely to meet in mid-afternoon.
"We've made great progress, but we have to commit it to paper before we can formally agree," said House Speaker Nancy Pelosi (D-Calif.), who has pledged to make the plan available to the public for at least 24 hours before the House votes on it. A vote could come as early as tomorrow in the House, with the Senate expected to follow soon after.
"We've been working on this a long time. We've still got more to do to finalize it, but I think we're there," Paulson said. "So far, so good."
Rep. Roy Blunt (R-Mo.), who represented House Republicans, the group that had raised the most serious objections to the plan, said he was pleased with the progress made but that he had to take the proposal back to his caucus before committing his support for it. "I look forward to what we're going to see on paper and presenting these ideas to my colleagues and getting their reaction," Blunt said.
House Republicans appeared headed for a potentially spirited fight.
The office of House Minority Leader John A. Boehner, without officially endorsing the legislation, put out a series of talking points in the early afternoon outlining the favorable portions of the bill for conservatives.
However, one leading conservative, Rep. Mike Pence (R-Ind.), issued what amounted to a call to arms to fight the bailout.
"The decision to give the federal government the ability to nationalize almost every bad mortgage in America interrupts this basic truth of our free market economy. ... Before you vote, ask yourself why you came here and vote with courage and integrity to those principals. If you came here because you believe in limited government and the freedom of the American marketplace, vote in accordance with those convictions," Pence wrote to House Republicans today.
A senior administration official, who requested anonymity to speak freely about the plan, said both sides had made significant concessions to achieve compromise. The Bush administration has agreed to accept a number of Democratic demands, including:
· The money would be disbursed in segments, with Paulson receiving $250 billion immediately, $100 billion upon White House certification of its necessity and the final $350 billion only after Congress has been given 15 days to object.
· Firms participating in the bailout would be required to grant the government warrants to obtain nonvoting shares of stock, so taxpayers can benefit if the companies return to profitability. Taxpayers also would be first in line to receive repayment if a participating firm fails.
· Firms that receive an infusion of government cash of $300 million or more will be required to limit compensation for senior executives, with especially severe limits on "golden parachutes" at failing firms. For most firms, compensation limits will be enacted primarily through the tax code by reducing tax deductions for firms that pay their top five executives more than $500,000 a year.
The administration also agreed to Democratic demands that the financial services industry should help pay for the program. Under the agreement, the president would be required to propose a fee on the industry if the government has not recovered its money through sales of the assets within five years.
Democrats also made a number of concessions, abandoning demands that bankruptcy judges be empowered to modify home mortgages on primary residences for people in foreclosure. They also agreed not to dedicate a portion of any profits from the bailout program to an affordable housing fund that Republicans claimed would primarily assist social service organizations that support the Democratic Party, the official said.
Meanwhile, House Republicans won a major victory, convincing negotiators to include a provision that would require the Treasury Department to create a a federal insurance program, funded by the banks, that would guarantee banks and other firms against loss from any troubled asset.
According to summaries of the deal released this morning by leaders in both parties, the agreement also calls for strict oversight of the bailout program, including an independent Inspector General and an oversight board appointed by both parties in Congress. The agreement also permits Treasury to purchase bad assets from pension plans, local governments and small banks, as well as major financial firms. And it would permit community banks that hold now worthless stock in mortgage-finance giants Fannie Mae and Freddie Mac, which were seized by the government, to count those losses immedately against ordinary income.
The House was gaveled into session at 1 p.m. today, starting with the usual one-minute speeches before actual legislative business began later in the afternoon. One by one, the most liberal and conservative members took to the well of the House to denounce the bill.
"Hold hearings, let's right this bill well," said Rep. Brad Sherman (D-Calif.), a senior member of the Financial Services Committee opposed to the legislation.
"I have been thrown out of more meetings than I thought possible," said Rep. Michael Burgess (R-Tex.), who opposes the bill and was ejected around 8 p.m. last night from a meeting with Paulson he tried to enter in the offices of Boehner (R-Ohio).
Leadership in both parties remained confident, however, that a consensus would form that the legislation would pass, likely with a large majority of Democrats and a sizeable portion of Republicans. Both Republicans and Democrats in the House were scheduled to huddle in closed-door meetings this afternoon to review the proposals. Passage in the Senate is considered much easier.
The plan to rescue the U.S. financial markets was first advanced by the Bush administration in a late-night meeting with lawmakers just 10 days ago. Under the proposal, 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 its investment.
Yesterday's talks, conducted mainly in 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.
"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 Pelosi's leadership team.
Democrats said there were no outstanding issues remaining, but that negotiators need to see the words on paper before they can sign off on the plan. "It's really a question of seeing what we believe we've agreed to," said Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee.
Even strong opponents of the 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 of fears that Congress's failure to act would cripple financial markets and devastate the economy.
Yesterday's negotiations, which began shortly after 3 p.m., were at times tense and confusing, according to participants. At one point, according to Sen. Kent Conrad (D-N.D.), one senator sought advice from investor Warren E. Buffett, one of the world's richest men and a director of The Washington Post Co.
From 3 p.m. to 5:30 p.m., 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."
After a break for dinner, the sides scattered into at least three separate groupings -- Paulson huddled in House Minority Leader John A. 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 in Pelosi's office to strike a final deal.
Yesterday's 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 elections. 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 said the government could earn back much of its money, 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," President 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."
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. Of the $700 billion figure, House Majority Leader Steny Hoyer (D-Md.) said: "Nobody believes that's going to be the final cost."
Staff writer Dan Eggen contributed to this report.
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