Washington— The White House and congressional leaders agreed Sunday to a $700 billion rescue of the ailing financial industry after lawmakers insisted on sharing spending controls with the Bush administration. The biggest U.S. bailout in history won the tentative support of both major presidential candidates and goes to a House vote today.
The plan would give the administration broad power to use billions upon billions of taxpayer dollars to purchase devalued mortgage-related assets held by cash-starved financial firms.
President Bush called the vote a difficult one for lawmakers but said he is confident Congress will pass it.
“Without this rescue plan, the costs to the American economy could be disastrous,” Bush said in a statement released by the White House.
He was to speak publicly about the plan this morning before U.S. markets open.
Congress insisted on a stronger hand in controlling the money than the White House wanted.
Lawmakers had to navigate between angry voters with little regard for Wall Street and administration officials who warned that inaction would cause the economy to seize up and spiral into recession.
A deal in hand, Capitol Hill leaders scrambled to sell it to colleagues in both parties and acknowledged that they were not certain it would pass.
“Now we have to get the votes,” said Harry Reid, D-Nev., the Senate majority leader.
John Boehner, R-Ohio, the House minority leader, said he was urging “every member whose conscience will allow them to support this” to back it, but officials in both parties expected the vote to be a nail-biter.
The final legislation was released Sunday evening, and Republicans and Democrats huddled for hours in private meetings to learn its details and voice their concerns. Many said they left undecided, and leaders were scrambling to put the most positive face on a deeply unpopular plan.
“This isn’t about a bailout of Wall Street; it’s a buy-in, so that we can turn our economy around,” said House Speaker Nancy Pelosi, D-Calif.
The largest government intervention in financial markets since the Great Depression casts Washington’s long shadow over Wall Street. The government would take over huge amounts of devalued assets in hopes of unlocking frozen credit.
“I don’t know of anyone here who wants the center of the economic universe to be Washington,” said a top negotiator, Sen. Chris Dodd, D-Conn. But “the center of gravity is here temporarily. . . . God forbid it’s here any longer than it takes to get credit moving again.”
The plan would let Congress block half the money and force the president to jump through some hoops before using it all. The government could get at $250 billion immediately, $100 billion more if the president certified it was necessary and the last $350 billion with a separate certification — subject to a congressional resolution of disapproval.
Still, the resolution could be vetoed by the president, meaning it would take extra-large congressional majorities to stop it.
As Bush’s team stepped up its efforts to corral reluctant Republicans, the White House released a letter from his budget chief, Jim Nussle, to Boehner saying the measure would cost taxpayers “considerably less” than its eye-popping $700 billion total.
Democratic leaders have made it clear they will not back the 110-page bill unless a substantial number of Republicans join them.
“It will take two to make this work,” said Rep. Rahm Emanuel, D-Ill.
Rep. Joe Barton, R-Texas, an opponent, estimated that half of the House’s 199 Republicans are “truly undecided.”
Vote may be Wednesday
Lawmakers who struck a post-midnight deal Sunday on the plan with Treasury Secretary Henry Paulson predicted final congressional action might not come until Wednesday.
The plan is meant to end a vicious downward spiral that has battered all levels of the economy. Hundreds of billions of dollars in investments based on mortgages have soured and cramped banks’ willingness to lend.
“If we do not do this, the trauma, the chaos and the disruption to everyday Americans’ lives will be overwhelming, and that’s a price we can’t afford to risk paying,” Sen. Judd Gregg, the chief Senate Republican in the talks, told The Associated Press.
Rep. Barney Frank of Massachusetts, the House Financial Services Committee chairman, predicted the measure would pass.
A breakthrough came Saturday night, with the addition of a requirement sought by centrist Democrats and Republicans to ensure that the government be paid back by companies that got help. The president would have to tell Congress after five years how he planned to recoup the losses.
Another key bargain — this time to draw Republican support — allows, but doesn’t require, government to insure some bad home loans rather than buy them. That’s designed to limit the amount of federal money used.
The rescue would be open only to companies who deny their executives “golden parachutes” and limit their pay packages.
Firms that get the most help through the program — $300 million or more — would face steep taxes on any compensation for their top people over $500,000.
The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in recipients’ future profits.
To help struggling homeowners, the plan would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers’ monthly payments so they can keep their homes.
Democrats surrendered other cherished goals, such as letting judges rewrite bankrupt homeowners’ mortgages and steering any profits gained toward an affordable-housing fund.
It was Democratic presidential candidate Barack Obama who first signaled Democrats were willing to give up some of their favorite proposals. The Illinois senator told reporters Wednesday that the bankruptcy measure was a priority but that it was “probably something that we shouldn’t try to do in this piece of legislation.”
Frank negotiated much of the compromise in a marathon series of up- and-down meetings and phone calls with Paulson, Dodd and key Republicans, including Gregg and Rep. Roy Blunt of Missouri.
Pelosi shepherded the discussions at key points and cut a central deal Saturday night — on companies paying back taxpayers for any losses — that gave momentum to the final accord.
Growing pressure
An extraordinary week of talks unfolded after Paulson and Ben Bernanke, the Federal Reserve chairman, went to Congress 10 days ago with ominous warnings about a full-blown economic meltdown if lawmakers did not act quickly to infuse huge amounts of money into a sector buckling under the weight of toxic debt.
The negotiations were shaped by the political pressures of an intense campaign season in which voters’ economic concerns figure prominently. They brought Republican presidential candidate John McCain and Obama to a White House meeting that increased the pressure on both sides to strike a bargain.
Lawmakers in both parties who are facing re-election are loath to embrace a costly plan proposed by a deeply unpopular president that would benefit perhaps the most publicly detested of all: companies that got rich off bad bets that have caused economic pain for ordinary people.
But many of them say the plan is vital to ensure their constituents don’t pay for Wall Street’s mistakes, in the form of unaffordable credit and major hits to investments they count on, such as their pensions.
