Talks over the Bush administration's plan to stabilize the U.S. financial system lurched forward Friday, as rebellious Republicans returned to the negotiating table and congressional aides began the tortuous work of drafting a bill to execute one of the biggest interventions into the private market in modern history.
A day after they nearly derailed the plan, House Republicans agreed to send their second-ranking leader to negotiate with Democrats and Senate Republicans.
Lawmakers canceled plans to adjourn Friday for the November election and instead prepared to work through the weekend on the proposal, which would authorize the Treasury Department to spend up to $700 billion to take bad assets off the books of faltering financial institutions.
Democrats said they hoped to announce an agreement late Sunday before Asian financial markets open, with a House vote possible by Monday. A Senate vote would follow later in the week.
“Great progress is being made. We will not leave until legislation is passed that will be signed by the president,” said House Speaker Nancy Pelosi, D-Calif.
Added Rep. Barney Frank, D-Mass., an architect of the legislation: “I am convinced that by Sunday we will have an agreement people will understand.”
With global markets hanging on every twist of the debate in Washington, White House officials swarmed Capitol Hill in an attempt to salvage a deal, while President Bush issued another call for action during a brief appearance outside the Oval Office.
“There are disagreements over aspects of the rescue plan, but there is no disagreement that something substantial must be done,” Bush said Friday morning. “The legislative process is sometimes not very pretty, but we are going to get a package passed. We will rise to the occasion.”
Bush followed his remarks with calls to House Republican leaders, who have balked at approving a massive bailout for Wall Street dealmakers and are pushing an alternative plan to create a government insurance program for home mortgages. Republicans say that plan would blunt the impact of record foreclosures, which have paralyzed institutions that hold mortgage-related assets. But critics say it would do nothing to inject needed cash into banks and other institutions.
Treasury Secretary Henry Paulson presented lawmakers with a three-page plan for salvaging the country's financial system one week ago. By Friday, following discussions with Democratic leaders, the draft proposal had grown to more than 100 pages, with hours of negotiation yet to come.
Under a tentative agreement among lawmakers and administration officials, the measure would grant Treasury sweeping power to buy up bad mortgage-related assets through Dec. 31, 2009, but it also would create an independent inspector general to oversee that program. As the new owner of billions of dollars worth of mortgage-backed assets, Treasury would be required to reduce the number of foreclosures by modifying the terms of the loans that underlie those assets.
Republican negotiators, meanwhile, appeared to be most concerned Friday about a Democratic proposal to dedicate a portion of any profits from the eventual sale of the assets to an affordable-housing fund. Republicans argue that the fund would benefit social service organizations with strong ties to the Democratic party.
Meanwhile, fresh details emerged from a remarkably tumultuous White House meeting Thursday. With the session breaking up in disarray, according to two participants, President Bush issued an appeal, saying, “Can't we just all go out and say things are OK?”
The group around the table, congressional leaders as well as presidential contenders John McCain and Barack Obama, spurned the presidential request for a publicly united front.
Earlier in the White House meeting, Democrats peppered House Republican Leader John Boehner of Ohio with questions about the details of an alternative he was backing. “‘I don't know what the hell they are,' Bush said at one point,” recalled one person who was in the room. All the participants spoke on condition of anonymity, saying the meeting was private.
Friday got off to a much better start, as House Minority Whip Roy Blunt, R-Mo., announced that he would join the negotiations. A member of GOP leadership for six years, Blunt enjoys a comfortable relationship with some Democrats and played the lead role in several recent bipartisan negotiations, including a compromise on foreign intelligence surveillance legislation.
There were fresh signs of urgency at both the White House and the Capitol, a day after the rancorous White House session and the collapse of Washington Mutual, the largest failure in U.S. banking history. The Seattle-based institution had invested heavily in the now-moribund mortgage market.
Still, the Dow Jones industrials rose 121 points for the day as investors anticipated a weekend agreement.
Rep. Eric Cantor, R-Va., a key figure in a band of Republicans that had adamantly opposed the bailout plan, softened his opposition. Cantor acknowledged that, in dealing with the most troubled mortgage securities, the insurance model preferred by many Republicans would not be sufficient because the securities already had minimal value. “So you've got to go with Paulson's model,” Cantor said.
Including an option for mortgage insurance might persuade more Republicans to support the bailout plan, Cantor said. Boehner concurred, saying the entire deal could collapse unless the idea were given serious consideration.
Without it, “a large majority of Republicans cannot – and will not – support Secretary Paulson's plan,” Boehner wrote in a letter Friday to Pelosi.
Democrats said they don't believe insuring mortgages would solve the credit crisis, because the Republican plan proposes to charge premiums to the very banks that are struggling to stay afloat. They said the idea also would make the government the insurer of last resort, exposing it to losses that could exceed the price of the Bush proposal.
But Frank said he was willing to add an insurance option if it secured Republican votes. Democrats have accused McCain of engineering Thursday's breakdown in hopes of garnering attention for his campaign.
Republicans on Friday defended McCain but acknowledged that his intervention had created a stir that threatened the bailout.
With McCain and Obama back on the campaign trail, the talks are “back on track,” said Sen. Lamar Alexander, R-Tenn. Alexander said he expects more than 40 Republicans in the Senate to support the final legislation if it is endorsed by their lead negotiator, Sen. Judd Gregg, R-N.H.
“He'll have overwhelming support for it,” Alexander said.