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Sunday, September 28, 2008
Breakthrough Reached in Negotiations on Bailout
Officials said that Congressional staff members would work through the night to finalize the language of the agreement and draft a bill, and that the bill would be brought to the House floor for a vote on Monday.
The bill includes pay limits for some 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 conflict-of-interest rules for firms hired by the Treasury to help run the program.
The administration had initially requested virtually unfettered authority to operate the bailout program. But as they moved toward clinching a 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.
Congressional leaders and Treasury Secretary Henry M. Paulson Jr. emerged from behind closed doors to announce the tentative agreement at 12:30 a.m. Sunday, after two days of marathon meetings.
“We have made great progress toward a deal, which will work and be effective in the marketplace,” Mr. Paulson said at a news conference in Statuary Hall in the Capitol.
In the final hours of negotiations, Democratic lawmakers, including Representative Rahm Emanuel of Illinois and Senator Kent Conrad of North Dakota, carried pages of the bill by hand, back and forth, from Speaker Nancy Pelosi’s office, where the Democrats were encamped, to Mr. Paulson and other Republicans in the offices of Representative John A. Boehner of Ohio, the House minority leader.
At the same time, a series of phone calls was taking place, including conversations between Ms. Pelosi and President Bush; between Mr. Paulson and the two presidential candidates, Senator John McCain and Senator Barack Obama; and between the candidates and top lawmakers.
“All of this was done in a way to insulate Main Street and everyday Americans from the crisis on Wall Street,” Ms. Pelosi said at the news conference. “We have to commit it to paper so we can formally agree, but I want to congratulate all of the negotiators for the great work they have done.”
In a statement, Tony Fratto, the deputy White House press secretary, said: “We’re pleased with the progress tonight and appreciate the bipartisan effort to stabilize our financial markets and protect our economy.”
A senior administration official who participated in the talks said the deal was effectively done. “I know of no unresolved open issues for principals,” the official said.
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, especially in the House, are also eager to adjourn and return home for the fall campaign season.
Among the last sticking points was an unexpected and bitter fight over how to pay for any losses that taxpayers may experience after distressed debt has been purchased and resold.
Democrats had pushed for a fee on securities transactions, essentially a tax on financial firms, saying it was fitting that they contribute to the cost.
In the end, lawmakers and the administration opted to leave the decision to the next president, who must present a proposal to Congress to pay for any losses.
Officials said they had also agreed to include a proposal by House Republicans that gives the Treasury secretary an additional option of issuing government insurance for troubled financial instruments as a way of reducing the amount of taxpayer money spent up front on the rescue effort.
The Treasury would be required to create the insurance program, officials said, but not necessarily to use it. Mr. Paulson had expressed little interest in that plan, and initial cost projections suggested it would be enormously expensive. But final details were not immediately available.
Saturday’s intense negotiating effort followed a tumultuous week, including a contentious meeting at the White House with President Bush and the two presidential candidates.
That meeting had moments of drama, including a blunt warning by President Bush. “If money isn’t loosened up, this sucker could go down,” he said. It ended with angry recriminations after House Republicans scotched a near-agreement from earlier in the day.
Mr. Paulson scrambled to revive the talks, and they resumed almost immediately. Congressional and Treasury staff then worked all of Friday and through the night, ending in the predawn.
Mr. Paulson and Congressional leaders stepped in at 3 p.m. Saturday and were in direct negotiations for most of the rest of the night. And immediately after the news conference, staff members began efforts to finalize the language.
Even then, their work is hardly over.
Congressional leaders who want the bailout to pass with solid bipartisan support had already 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 criticize it as a giveaway to Wall Street.
Representative Roy Blunt of Missouri, the chief negotiator for House Republicans, who have been among the most reluctant to support the plan, expressed some satisfaction but did not commit his members’ support.
“We need to look and see where we are on paper tomorrow,” Mr. Blunt said. “We have been talking about how we can make these things work in a way that our conference can come together.”
Representative Barney Frank of Massachusetts, the lead negotiator for the House Democrats, said that there was no expectation of making anyone smile.
“This was never going to be a bill that was going to make people happy,” he said. “No solution to a problem can be more elegant than the problem itself. We are dealing with a very difficult problem.”
“Given the dimensions of the problem, I believe we have done a good job,” he added. “It includes genuine compromises.”
Aides described a tense meeting on Saturday afternoon that included Senator Max Baucus, Democrat of Montana, shouting at Mr. 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, Mr. Blunt and Senator 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 remains the plan for the government to buy 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.
The money will disbursed in parts, with an initial $250 billion to get the rescue effort under way, followed by another $100 billion upon a report by Mr. Bush to Congress.
The president could then request the balance of $350 billion at any time. If Congress disapproved, it would have to act within 15 days to deny the Treasury the money.
Early in the day, the two presidential nominees were active from the sidelines. Mr. McCain telephoned Congressional Republicans to sound them out, and Mr. Obama got regular updates by phone from Mr. Paulson and top lawmakers.
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 Senator 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, Mr. Shelby replied, “My position is ‘No.’ ”
Officials, including Mr. 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,” Mr. 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.”
In a brief speech on the Senate floor, Senator Kent Conrad, Democrat of North Dakota, said: “It’s not just going to be Wall Street. The chairman of the Federal Reserve has told us if the credit lockup 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 buying assets of value — potentially worth much more than the government will pay for them — there is even a chance the rescue effort would eventually return a profit.
Some Democrats had sought to direct 20 percent of any such profits to help create affordable housing, but Republicans opposed that and demanded that all profits be returned to the Treasury.
Robert Pear contributed reporting
Read more in the New York Times
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