By Lori Montgomery and Paul Kane
Washington Post Staff Writers
Sunday, September 28, 2008
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. from a marathon session in the Capitol at 12:30 a.m. to announce that they had reached 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.
Full details of the plan were not immediately available. Lawmakers said their staffs would be working through the night.
"We've made great progress, but we have to commit it to paper before we can formally agree, " House Speaker Nancy Pelosi (D-Calif.) said. Her office began procedures to hold a vote as soon as tomorrow.
"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. . . . So far, so good," Paulson said. The Senate is likely to take up the measure soon after the House approves it.
A senior administration official, who requested anonymity to speak freely about the plan, said it would include limits on executive compensation to companies participating in it, primarily by reducing tax deductions if they pay their executives more than $400,000 a year. Also, the money would be parceled out to the Treasury, rather than given in one $700 billion chunk.
Democrats gave up demands to have bankruptcy judges be allowed to lower mortgage payments on primary residences for people in foreclosure. They also gave up funding for a housing program that Republicans thought would help liberal groups associated with Democrats, the official said.
Under the plan, first put forward by the Bush administration in a late-night meeting with lawmakers just 10 days ago, 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.
Democrats pressed hard for further taxpayer protections, including a fee that would be imposed on the financial services industry if after five years the government had not fully recouped its money. The proposal, which did not surface in negotiations until yesterday, would help win the support of a fiscally conservative group of House Democrats known as the Blue Dogs, an important bloc of 47 votes.
"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.
Paulson and some Republican lawmakers were said to be cool to the idea, though House Republicans also have expressed serious concerns about the cost of the program and have suggested other ideas for limiting taxpayer exposure. A House GOP plan that would allow Treasury to create a program of government insurance for some mortgages was also under discussion.
Rep. Roy Blunt (R-Ohio), who represented House Republicans, the most reluctant group to support the plan, did not commit fully to it but said he was pleased with the progress. "I look forward to what we're going to see on paper and presenting these ideas to my colleagues and getting their reaction," he said.
Democrats and Republicans from both chambers meeting with Paulson and other administration officials were also working to forge a compromise on a variety of other outstanding issues, including how quickly the government should make money available for the program and whether participating firms should be required to limit executive pay.
Even staunch opponents of the emerging plan said they expected it to pass.
Democrats said there were no outstanding issues remaining, but the negotiators just wanted to review the final words on paper today. "It's really a question of seeing what we believe we've agreed to," said Sen. Christopher J. Dodd (D-Conn.).
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.), a senator sought advice from investor Warren E. Buffett, one of the world's richest men and a director of The Washington Post Co.
For nearly three hours in the afternoon, 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."
The 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 election. 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 that 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."
On Capitol Hill, Democrats, too, tried to play down the $700 billion figure. "Nobody believes that's going to be the final cost," House Majority Leader Steny Hoyer (D-Md.) told reporters.
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. Meanwhile, they are pressing to release the money in segments -- $250 billion immediately, $100 billion later and the final $350 billion only after Congress is given a chance to object -- a move that they say will allow Congress to closely oversee how the money is spent.
All parties to the talks had agreed on at least one point early yesterday: The need for an oversight board to ensure the program is run properly. The final details of the board remained unclear last night, and most lawmakers said it was too early to know who is likely to run it.
Hoyer said that whoever oversees the bailout program must instill "confidence" in the public and must not have any conflicts of interest with the financial markets or the Treasury.
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.
Pelosi said she hoped to publish the legislation on the Internet for almost an entire day before voting, meaning a vote could come tonight or tomorrow morning.
"I would hope that the progress that we make today could bring us to that point," she told reporters early yesterday evening.
Staff writer Dan Eggen contributed to this report.