By Lori Montgomery and Paul Kane
Washington Post Staff Writers
Monday, September 29, 2008
After a week of political tumult and deepening economic anxiety, congressional leaders yesterday rallied support for an historic proposal that would grant the government vast new powers over Wall Street and offer fresh help to homeowners at risk of foreclosure.
The proposed legislation, which is scheduled for a vote today in the House, would authorize Treasury Secretary Henry M. Paulson Jr. to initiate what is likely to become the biggest government bailout in U.S. history, allowing him to spend up to $700 billion to relieve faltering banks and other firms of bad assets backed by home mortgages, which are falling into foreclosure at record rates.
The plan would give Paulson broad latitude to purchase any assets from any firms at any price and to assemble a team of individuals and institutions to manage them. In wielding those powers, Paulson and others hope to contain a crisis that already has caused the failure or forced the rescue of a half-dozen major Wall Street firms and unnerved markets around the world.
The measure was forged during a marathon negotiating session between lawmakers from both parties and Paulson -- who at one point appeared to negotiators to be on the verge of collapse. Restive Republican lawmakers originally criticized the package as putting taxpayers at risk and violating free-market principles, but many of them appeared yesterday to be dropping their opposition.
House Minority Leader John A. Boehner (R-Ohio) emerged last night from a meeting of House Republicans to say he is "encouraging every member whose conscience will allow them to support this." Boehner said he and other GOP leaders made the case that negotiators had improved the bill by gaining a key concession on a plan to limit taxpayer exposure.
A vote in the Senate could take place as soon as Wednesday.
President Bush last night released a statement praising the measure. Although it has been panned as a massive bailout for Wall Street financiers, Bush argued the bill would have broad benefits for ordinary families and business owners who need "access to credit" to "make purchases, ship goods and meet their payrolls."
"This plan sends a strong signal to markets around the world that the United States is serious about restoring confidence and stability to our financial system," Bush said. "Without this rescue plan, the costs to the American economy could be disastrous."
Bush has stressed that the ultimate cost of the bailout would be much less than $700 billion because the government would eventually sell the assets it purchases and recover most, if not all, of its investment.
Still, he acknowledged yesterday that the measure presents lawmakers with "a difficult vote" barely a month before the November elections. Polls show the bailout is hugely unpopular, and lawmakers have been inundated with calls and e-mails from angry constituents. With investors hanging on every twist of the debate in Washington, leaders in both chambers predicted that the bill would pass.
"If we do this and it works right, it's most likely that people will never appreciate how close we came to the brink. So there's not much political upside to this," said Sen. Judd Gregg (R-N.H.), the lead negotiator for Senate Republicans. But lawmakers are ready to support the bill, Gregg said, because they know "we are facing a crisis of proportions that are almost incomprehensible."
The scope of the crisis was laid out 11 days ago during a late-night meeting in the Capitol where Paulson and Federal Reserve Chairman Ben S. Bernanke warned lawmakers that an imminent meltdown in financial markets threatened to destroy the wealth and jobs of millions of Americans. Two days later, Paulson presented lawmakers with a three-page economic rescue plan that would have granted the Treasury nearly unfettered power to shore up the nation's financial system, unchecked by federal or judicial review.
By yesterday, the measure had grown to 110 pages, many of them devoted to the creation of myriad oversight agencies, including an independent inspector general. Still, the measure would give Paulson broad authority to create an Office of Financial Stability within the Treasury, to hire its staff and to direct their activities. The head of the office would be subject to Senate confirmation and would be required to quickly publish guidelines for identifying, pricing and purchasing troubled assets.
Money for the program would be released in segments, with the Treasury secretary receiving $250 billion immediately. Paulson has said he expects to spend about $50 billion a month on the program.
The Treasury secretary's power to purchase assets would end on Dec. 31, 2009, although the next administration could seek a one-year extension. The assets could be held indefinitely and sold when the housing market recovers, theoretically for a profit.
To protect taxpayers, participating firms would be required to give the government warrants to buy stock so taxpayers could benefit if they return to profitability. If the government does not regain all of its money after five years, the president would be required to submit a plan for recovering the money "from entities benefiting from the program." Given those provisions, some firms might be discouraged from participating, but few have so far indicated their intentions either way.
The measure also would require federal officials to rein in excessive compensation for corporate executives who participate in the bailout program, a first step toward addressing a longtime Democratic priority. According to a recent report by the Institute for Policy Studies, the chief executives of large U.S. companies made an average of $10.5 million last year, 344 times the pay of the average worker.
The bill also requires Paulson to establish a new federal insurance program, funded by the banks, that would protect firms against loss from troubled assets. Although Paulson and Bernanke had concluded that such a program would not be an effective way to pump needed cash into struggling firms, House Republicans demanded the provision, saying it would offer an alternative method for shoring up companies at no cost to taxpayers.
After days of at-times grueling negotiations, House Speaker Nancy Pelosi (D-Calif.) said lawmakers will now be asked to approve the bill without further changes. "The bill is frozen. It's on the Internet," she told reporters. "The public is looking at it."
While the bill is likely to have strong support in the Senate, its chances are less clear in the House, where leaders in both parties said they were still unsure how many votes it would receive. Democrats and Republicans were summoned into separate private meetings late yesterday where leaders shared the final details of the bill and urged a vote for its passage.
After stalling negotiations late last week, key Republicans spoke in support of the measure. Rep. Eric Cantor (R-Va.) who helped draft the insurance provision, assured lawmakers that the bill now contains important safeguards for taxpayers. Rep. Chris Shays (R-Conn.), a moderate who represents many financial services industry executives, said the meeting took on a solemn tone as several retiring lawmakers spoke with passion about the historic nature of what will likely be their last vote.
Meanwhile, Democrats meeting nearby in the basement of the Capitol also heard a rallying cry from their leaders, who won support from some surprising corners. Rep. Jim Marshall (D-Ga.), who represents a conservative-leaning district and is a frequent GOP target, told his colleagues that passing the legislation is more important than winning re-election.
"I am willing to give up my seat over this," Marshall said, according to one attendee.
In both meetings, lawmakers continued to worry aloud about how to protect taxpayers from bearing the cost of the bailout, an issue that was also one of the most fiercely contested matters in talks with Paulson early yesterday.
The negotiators gathered just after 3 p.m. Saturday under an ornate painting of Abraham Lincoln in a large conference room in Pelosi's suite of offices on the second floor of the Capitol. The first few hours were intense and contentious, participants said, marked by shouting over executive pay and a last-minute Democratic request for a fee on the financial services industry to cover the cost of the bailout program.
When details about the fee quickly leaked to reporters in a hallway outside Pelosi's offices, a senior aide walked around the negotiating table confiscating BlackBerrys, labeled them by name with Post-It notes and dumped them into a recycling bin.
As negotiations dragged into the night, Paulson -- already drained by weeks of crisis management -- appeared at one point to be weary and teary-eyed, according to Rep. Rahm Emanuel (D-Ill.), prompting lawmakers to fear for his health. "Are you okay?" asked Gregg, who suggested calling the Capitol physician. Paulson waved them off, saying he was just very tired.
Just before midnight, Pelosi called the White House chief of staff, Joshua Bolten, to report an impasse over executive compensation and the industry fee. With Emanuel on the call, Pelosi threatened to let lawmakers vote on the two issues, which she thought would pass overwhelmingly.
"You gotta understand, this is politics at this point," Emanuel told Bolten, a friendly rival. The White House and Paulson soon reached to a compromise.
The meeting finally broke up around 12:30 a.m. Sunday, when Paulson and lawmakers briefly addressed journalists. After the historic declarations beneath a statue of Will Rogers, Paulson locked arms with Sen. Charles E. Schumer (D-N.Y.) and leaned heavily on the senator for support as they walked away.
Staff writers Dan Eggen contributed to this report.