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Mon Sep 29 00:46:57 CEST 2008
WASHINGTON - Congressional leaders and the White House 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 presidential candidates and goes to the House for a
The plan, bollixed up for days by election-year politics, would give
the administration broad power to use taxpayers' money to purchase
billions upon billions of home mortgage-related assets held by cash-
starved financial firms.
Flexing its political muscle, Congress insisted on a stronger hand in
controlling the money than the White House had 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 they were not certain it
would pass. "Now we have to get the votes," said Sen. Harry Reid, D-
Nev., the majority leader.
The final legislation was released Sunday evening. House Republicans
and Democrats met privately to review it and decide how they would
vote. "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,
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 from
beleaguered financial companies 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,
chairman of the Senate Banking, Housing and Urban Affairs Committee.
But, he added, "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 — and 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.
Lawmakers who struck a post-midnight deal on the plan with Treasury
Secretary Henry Paulson predicted final congressional action might not
come until Wednesday.
The proposal is designed 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.
"This is the bottom line: 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.
"I do think we'll be able to pass it, and it will be a bipartisan
A breakthrough came when Democrats agreed to incorporate a GOP demand
— letting the government insure some bad home loans rather than buy
them. That would limit the amount of federal money used in the rescue.
Another important bargain, vital to attracting support from centrist
Democrats, would require that the government, after five years, submit
a plan to Congress on how to recoup any losses from the companies that
"This is something that all of us will swallow hard and go forward
with," said Republican presidential nominee John McCain. "The option
of doing nothing is simply not an acceptable option."
His Democratic rival Barack Obama sought credit for taxpayer
safeguards added to the initial proposal from the Bush administration.
"I was pushing very hard and involved in shaping those provisions," he
Later, at a rally in Detroit, Obama said, "it looks like we will pass
that plan very soon."
House Republicans said they were reviewing the plan.
As late as Sunday afternoon, Republicans regarded the deal as "a
proposal that is promising in principle, but that is still not final,"
said Antonia Ferrier, a spokeswoman for Missouri Rep. Roy Blunt, the
top House GOP negotiator.
Executives whose companies benefit from the rescue could not get
"golden parachutes" and would see their pay packages limited. Firms
that got the most help through the program — $300 million or more —
would face steep taxes on any compensation for their top people over
The government would receive stock warrants in return for the bailout
relief, giving taxpayers a chance to share in financial companies'
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.
But Democrats surrendered other cherished goals: letting judges
rewrite bankrupt homeowners' mortgages and steering any profits gained
toward an affordable housing fund.
It was Obama who first signaled Democrats were willing to give up some
of their favorite proposals. He told reporters Wednesday that the
bankruptcy measure was a priority, but that it "probably something
that we shouldn't try to do in this piece of legislation."
"It's not a bill that any one of us would have written. It's a much
better bill than we got. It's not as good as it should be," said
Democratic Rep. Barney Frank of Massachusetts, the House Financial
Services Committee chairman. He predicted it would pass, though not by
a large majority.
Frank negotiated much of the compromise in a marathon series of up-and-
down meetings and phone calls with Paulson, Dodd, D-Conn., and key
Republicans including Gregg and Blunt.
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.
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 government
money into a financial 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 McCain and Obama to Washington for a White House meeting
that yielded more discord and behind-the-scenes theatrics than
progress, but increased the pressure on both sides to strike a
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
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, like their
Some proponents even said taxpayers could come out as financial
Gregg, R-N.H., said: "I don't think we're going to lose money, myself.
We may — it's possible — but I doubt it in the long run."
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