WASHINGTON - A day that began optimistically devolved into a night of partisan bickering, finger-pointing and more negotiations, as Democratic supporters of the $700 billion Bush administration bailout plan accused Republicans of trying to scuttle the deal.
And they also suggested that the man who had come into town to save the agreement, Republican presidential contender John McCain, had, in fact, wrecked it by encouraging the fracas, after a White House summit billed as a chance for both parties to work together ended with no agreement and perhaps more division on the issue than ever.
rescue plan for John McCain," Sen. Christopher Dodd (D-Conn.) fumed to CNN Thursday night after the White House meeting. "This is a sad day for the country."
Talks ended at 9 p.m. Central time and were expected to resume Friday morning. Earlier Thursday, Dodd, chairman of the Senate Banking Committee, said that Democratic and Republican negotiators on Capitol Hill had produced the framework for an agreement they believed could pass both houses of Congress and provide the Treasury Department with the powerful tools it has been asking for to assist distressed financial institutions reeling from the collapse of the housing bubble.
In a speech Wednesday night, President Bush warned that failure to quickly pass the bailout bill would plunge the country into a deep recession because of a squeeze on available credit for corporations, small businesses and individuals.
And indeed, upon news early Thursday of a potential agreement, stocks on Wall Street surged.
But by the time of the White House meeting, which included McCain, his Democratic rival Barack Obama and congressional leaders, that optimism had dissipated. During the meeting, a new alternative plan developed by House Republicans was circulated, effectively stopping progress on the bailout bill in its tracks.
Some Wall Street analysts were furious, and they fretted about how the market would respond Friday. Negotiations on the deal continued in the Capitol well into the evening.
The sudden impasse Thursday afternoon caused Sen. Richard Shelby (R-Ala.), a sworn foe of the bailout, to emerge from the White House after a meeting and declare that there was, in fact, no agreement at all. For a Republican to publicly rebuke a plan set forth by Bush outside the White House was a sign of how far the president's star has fallen.
Dodd and other Democrats blamed McCain, who vowed to suspend his campaign and skip Friday night's scheduled presidential debate until a bipartisan deal is reached. McCain spent much of the day talking on the Hill with Republicans, including some architects of the new proposal.
The McCain campaign denied that the candidate had thrown a wrench into the works and insisted that he was perhaps the best hope to salvage the deal.
"The problem right now is that any rescue package has to pass by a majority vote and there is not yet a majority of Democrats and Republicans who are willing to vote yes for anything," McCain adviser Steve Schmidt said. "So he is working to put together a deal consistent with his principles."
After the White House meeting, which was called at McCain's behest, Obama said, "I'm not clear that in a very difficult situation like this, that doing things in the spotlight and injecting presidential politics is necessarily useful."
The foundation for a congressional agreement was actually laid Wednesday, when the White House agreed to several key alterations in its original proposal, particularly caps on executive pay for companies that participate in a Treasury Department program to buy up "toxic" mortgage-backed assets from banks, Wall Street firms and other financial institutions.
Buying those assets, the administration says, would restore companies to greater fiscal health and allow the free flow of credit through the American banking system.
Another provision considered critical is one that would allow taxpayers to acquire an equity stake in companies that are aided by the Treasury fund. And the agreement calls for the $700 billion to be doled out in three installments rather than in one lump sum.
But with all the sound and fury roaring out of opposing camps Thursday night, much of the disagreement on the Hill centered on a Democratic proposal that would let bankruptcy judges rewrite the terms of mortgages for homeowners when the amount of a mortgage exceeds the value of the house. Republicans are dead set against giving judges such a power, known as a "cram-down."
"For me, if it's not in it, it's very troubling," Sen. Dick Durbin (D-Ill.), a proponent of the measure, said Thursday night. "To think that we are going to ride to the rescue of Wall Street incompetence by buying their mistakes and then turn these poor people loose ... the world is upside down."
The alternative Republican plan, pushed by Rep. Eric Cantor (R-Va.) and others, would not use tax dollars and would instead provide for government-backed insurance for mortgage-related assets and would remove regulatory and tax barriers to allow private industry to make a greater investment in the market. It was unclear whether the plan enjoyed the support of more than a small group of members.
It appears that the bailout bill, which was originally put forth by Treasury Secretary Henry Paulson, enjoys fairly solid bipartisan support in the Senate, but the House is the problem. Because Democrats hold a majority there, it remains possible that the bill could pass by a narrow margin. But House Speaker Nancy Pelosi has so far ruled out that notion, saying the bill must be approved with solid Republican support or not at all, fearing that Democrats would be left on the hook for a plan that many Americans have greeted with skepticism.
McCain said late Thursday that he is hopeful that Friday evening's debate in Oxford, Miss., will go forward. Obama said he wants that to happen.
"Sen. McCain has no reason to be fearful about a debate," Obama said. "He's a person of strong opinions and, you know, he's been expressing them on the campaign trail. This does give us an opportunity to go back and forth."