WASHINGTON - Leaders of both parties of Congress agreed last night to work with the Bush administration on an expedited plan to help end the crisis on Wall Street and get bad assets off the balance sheets of the nation's troubled financial institutions.
Coming on the heels of the unprecedented government rescue of giant insurer American International Group and the seizure of mortgage-finance giants Fannie Mae and Freddie Mac, the planned bipartisan legislation could produce the most significant changes in financial regulation since the Depression.
"Time is of the essence," said House Speaker Nancy Pelosi, a California Democrat, saying the bipartisan effort will try to "insulate Main Street from Wall Street."
Treasury Secretary Henry M. Paulson Jr., Federal Reserve Chairman Ben S. Bernanke and Securities and Exchange Commission Chairman Christopher Cox went to the Capitol to discuss a range of measures, some of which require legislation, to end what's being called the most threatening financial crisis since the 1930s.
"It will be the power - it may not be a new entity - it will be the power to buy up illiquid assets," said Rep. Barney Frank, a Massachusetts Democrat.
Although the details haven't been disclosed, the idea is to do what was done during the savings and loan crisis of the 1980s and create a way for the government to buy bad assets such as mortgage bonds that no one in the private sector wants to buy. This would get them off the balance sheets of banks, which have been forced to take a financial hit on the declining value of mortgage bonds.
"The root cause of the stress in capital markets is the real-estate correction, and what is going on with price declines in real estate," Paulson told reporters after the meeting. "We are coming together to work for an expeditious solution that is aimed right at the heart of this problem."
Senate Majority Leader Harry Reid, a Nevada Democrat, said it would be a "matter of hours, not days" before Congress gets a plan from the Bush administration and can begin work on it. Lawmakers expect to work through the weekend and pass the legislation next week.
"This of course is an unusual meeting; we've had a few lately," Reid said to laughs. "We have all committed to work with them on their proposal."
After a day of partisan sniping, everyone involved yesterday evening seemed intent on trying to calm markets by suggesting that there'd be bipartisan cooperation, although in the meeting, Democrats pressed for a second economic stimulus to help the middle class, an idea the Bush administration has resisted.
"I think we saw the best of the United States of America in the speaker's office tonight," Paulson said. "This country is able to come together and do things quickly when it needs to be done for the good of the American people."
Sen. Charles E. Schumer, a New York Democrat, would not comment on reports that the group was considering creating an entity like the Resolution Trust Corp., which was formed in 1989 to dispose of the assets of failed savings and loans and then went out of business.
But, Schumer said: "Everyone realizes this ad hoc situation can't last and we need a comprehensive plan. ... I think the administration knows that."
Schumer presented his own proposal for federal intervention, in which the government would lend struggling banks money in exchange for an equity stake. He said it would be conditioned on the banks agreeing to legislation that would let homeowners who have declared bankruptcy renegotiate their mortgages so they could keep their homes.
An outspoken advocate for the financial industry, Schumer said his idea was a better alternative to an RTC-like entity, which could have trouble selling off complex mortgage-related investments.
The Associated Press contributed to this article.