Bush, Democrats Expect Bailout Deal

WASHINGTON -- Wrangling among the nation's top political leaders threw the Bush administration's $700 billion bailout plan into disarray late Thursday, but Friday morning President Bush and Democratic leaders in the Senate said they are confident a plan will pass.

Associated Press

President Bush on Friday morning said he is confident that a financial-crisis bailout package will pass.

In a short statement, President Bush cited disagreements on details of rescue plan but said everyone agrees action is needed now. Later, Democratic Sens. Harry Reid of Nevada and Christopher Dodd of Connecticut echoed the president's confidence that a plan will be reached.

Sen. Reid said there is no reason a deal can't be done before Monday, and Congress will stay in session until a deal is done. However, he said that White House officials must be more "realistic." Sen. Dodd outlined some "non-negotiable" aspects of any plan, including limits on executive compensation, taxpayer protections and oversight over the Treasury.

The Democratic leaders also were critical of Republican efforts to alter the plan, signaling out Republican presidential candidate Sen. John McCain as an obstructionist force. "The insertion of presidential politics has not been helpful," Sen. Reid said.

Despite a dramatic day of negotiations on Capitol Hill that seemed to promise a deal, leaders broke off talks Thursday night with no agreement and with plans to reconvene this morning, without House Republicans. It was the Republicans' surprise championing of a competing plan late Thursday that derailed a carefully crafted compromise previously taking shape.

Also raising the stakes: The demise of Washington Mutual Inc., the largest banking failure in U.S. history, sent a fresh message to Washington of the fragility of the financial system.

In a sign of the extraordinary tension, at one point in the afternoon Treasury Secretary Henry Paulson interrupted a small gathering of Democratic leaders at the White House with a plea for them not to say anything that might blow up the troubled deal, according to three people familiar with the matter. In doing so, the Treasury secretary got down on one knee, a gesture that one of these people described as a moment of levity in a rough day.

Earlier in the day, congressional leaders had hammered together the outline of a compromise that involved allotting the bailout money in installments. It was widely expected to result in a deal. However a pivotal afternoon meeting at the White House, attended by President George W. Bush, congressional leaders and the two presidential candidates, broke with no agreement.

One cause of the delay: opposition from House Republicans who have tried to fashion an alternative plan that, instead of relying heavily on taxpayer money, could let banks buy insurance for the troubled assets weighing down their books.

The snafu spawned a round of political finger-pointing, with most Democrats blaming Sen. McCain, whose decision to return to Washington and meet with congressional Republicans appears to have complicated days of negotiations.

Sen. McCain "goes to a meeting and all of a sudden, we lose all the Republicans who have been working with us for the last five days," said Rep. Ellen Tauscher, a California Democrat. "This has to be a bipartisan deal. Unfortunately Republicans walked off the field."

McCain aides argue there was no deal at hand because there wasn't enough support among Republicans to move an agreement through the Congress. Instead, aides cast Sen. McCain as working to put together an agreement that can pass. His aides said the Arizona senator wants the Treasury to have flexibility to make loans as well as buy assets.

Plowing Ahead

After the contentious White House meeting, Democrats reconvened a small, bipartisan group at 9 p.m. to try to plow ahead. As the evening wore on, some senators predicted a bill would pass over the weekend, possibly using a complex congressional procedure such as folding the bailout into an existing spending measure.

The meeting, attended by Mr. Paulson, lasted roughly an hour.

Democrats could decide to go ahead with their plan without Republicans. While this would ensure passage, it would essentially saddle Democrats with responsibility for a bailout package that has stirred up strong resistance among both Democrat and Republican voters -- with elections just weeks away.

Republican leadership aides said as few as 30 to 40 of the 199 House Republicans could end up supporting the Bush package.

If Democrats are forced to move forward on their own, the party's demands on the White House are sure to go up. Proposals that once seemed off the table -- such as a plan to give bankruptcy judges authority to adjust mortgage terms -- would likely gain new life. The prospects would also likely rise for Democratic proposals to stimulate the economy, such as new spending on roads and bridges and extended federal benefits for the unemployed.

Even a temporary hitch in the process of devising a rescue plan for the financial industry, could deal a fresh blow to the markets. The Dow Jones Industrial Average rose sharply on Thursday, partly due to expectations that a bailout deal was imminent.

After the late-afternoon meeting with President Bush broke up, White House spokeswoman Dana Perino said, "Members of the administration and the congressional leaders pledged to continue working together to finalize a bill that will address concerns and solve the problem as soon as possible."