WASHINGTON - The House braced for a difficult vote set for today on a $700 billion rescue of the financial industry after a weekend of tense negotiations produced a plan that congressional leaders portrayed as greatly strengthened by new taxpayer safeguards.
The 110-page bill, intended to ease a growing credit crisis, came after a frenzied week of political twists and turns that culminated in an agreement between the Bush administration and Congress early yesterday. The measure still faced stiff resistance from Republican and Democratic lawmakers who portrayed it as a rush to economic judgment and an undeserved aid package for high-flying financiers who chased big profits through reckless investments.
But leaders of both parties in the House and Senate intensified their efforts to sell reluctant members of Congress on the legislation. All sides had to surrender something. The administration had to accept limits on executive pay and tougher oversight; Democrats had to sacrifice a push to allow bankruptcy judges to rewrite mortgages; and Republicans fell short in their push to require that the federal government insure, rather than buy, the bad debt.
Even so, lawmakers on all sides said the bill had been significantly improved from the Bush administration's original proposal.
The final version of the bill included a deal-sealing plan for eventually recouping losses. If the Treasury program to purchase and resell troubled mortgage-backed securities has lost money after five years, the president must submit a plan to Congress to recover those losses from the financial industry.
"This is a major, major change," House Speaker Nancy Pelosi said last night as she declared that negotiations were over and that a House vote was planned for today, with Senate action to follow.
The deal would also restrict gold-plated farewells for executives of companies that sell devalued assets to the Treasury Department.
President Bush called the measure "a very good bill" and praised congressional leaders. "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 in a statement. "Without this rescue plan, the costs to the American economy could be disastrous."
House Republicans had threatened to scuttle the deal, and proposed a radical alternative that would have focused on insuring troubled debt rather than buying it. In the end, the insurance proposal was included on top of the purchasing power, but there is no requirement that the Treasury secretary use it, leaving them short of that goal.
It is virtually impossible to know the ultimate cost of the rescue plan to taxpayers, but congressional leaders stressed that it would likely be far less than $700 billion. Because the Treasury will buy assets with the potential to resell them at a higher price, the government might even turn a profit.
The bill calls for disbursing the money in parts, starting with $250 billion followed by $100 billion at the discretion of the president. The Treasury can request the remaining $350 billion at any time, and Congress must act to deny it if it disapproves.
That new provision, pushed by House Democrats, was the last to be agreed to in a high-level series of talks that had top lawmakers and White House economic advisers hustling between offices just off the Capitol Rotunda until midnight Saturday, scrambling to strike an agreement before Asian markets opened last night.
The agreement on a bailout plan was greeted with subdued optimism in early Asian trading today. Investors bid up the Nikkei 225 Index in Tokyo by 1.1 percent and the Standard and Poor's/Australian Stock Exchange 200 Index by 0.2 percent. The stock market in Taiwan is closed today as Typhoon Jangmi passes directly over Taipei.
The dollar also strengthened in Asia and was worth 106.785 yen by midmorning today after trading at 106.01 late Friday in New York. The euro weakened to $1.4499 today from $1.4614 in late New York trading Friday.
Pelosi, Treasury Secretary Henry M. Paulson Jr. and others taking part in the talks announced that they had clinched a tentative deal at 12:30 a.m. yesterday, exhausted and a little giddy after more than seven hours of sparring. There were several tense moments, none more so than when Paulson, a critical player, suddenly seemed short of breath and possibly ill. He was tired, but fine.
Trying to bring around colleagues who remained uncertain of the plan, its architects sounded the alarm about the potential consequences of doing nothing. Sen. Judd Gregg of New Hampshire, the senior Republican on the Budget Committee and the lead Senate negotiator, raised the prospect of an economic catastrophe.
"If we don't pass it, we shouldn't be a Congress," Gregg said.
Both major presidential candidates, Sen. John McCain of Arizona, the Republican nominee, and Sen. Barack Obama, the Democratic candidate, gave guarded endorsements of the bailout plan. Both McCain and Obama had dipped into the negotiations during a contentious White House meeting Thursday.
Last night, both parties convened closed-door sessions in the House to review the plan, and conservative House Republicans remained a potential impediment.
But the party leadership was circulating information aimed at refuting some of the main criticisms of the bailout, indicating that they were poised to support it. "I am encouraging every member of our conference whose conscience will allow them to support this bill," said Rep. John A. Boehner of Ohio, the Republican leader.
A series of business-oriented trade associations with influence with Republicans also began weighing in.
The U.S. Chamber of Commerce said in a statement yesterday, "The Chamber believes the legislation contains the necessary elements to successfully remove the uncertainty and stem the turmoil that has plagued financial markets in recent weeks."
Members of the conservative rank and file remained unconvinced.
"While it creates a gimmicky $700 billion installment plan, attempts to improve transparency, and has new provisions cloaked as taxpayer protections, its net effect is still a huge bailout of the financial sector that will snuff out the free market system," said Rep. Connie Mack, a Republican from Florida.
Some Democrats bristled that they were now being called on to do the financial bidding of an administration they had viewed as previously uncooperative in dealing with executives who had performed irresponsibly or worse.
"Financial crimes have been committed," said Rep. Marcy Kaptur, an Ohio Democrat. "Now Congress is being asked to bail out the culprits."
Throughout yesterday, small groups of lawmakers could be found around the Capitol, exchanging their views on the plan. Some said they were willing to take a political risk and back it.
One, Rep. Jim Marshall, a Georgia Democrat facing a re-election contest, told his colleagues in their private meeting that he would vote for the measure to bolster the economy. "I am willing to give up my seat over this," Marshall said, according to another person at the session.
The architects of the plan said they realized they were calling on Congress to cast a tough vote since lawmakers might not get credit for averting a financial crisis because some constituents will not believe one was looming.
"Avoiding a catastrophe won't be recognized," said Sen. Christopher J. Dodd, a Connecticut Democrat and chairman of the Senate banking committee. "This economy is not going to have a blossoming on Wednesday."
But he and others said the support from the two presidential contenders, McCain and Obama, should provide some comfort to nervous lawmakers.
highlights of the rescue
Don't spend it all at once
The government gets $250 billion immediately, $100 billion more if the president says it's needed, and the last $350 billion with a separate approval - subject to scrutiny by Congress.
No 'golden parachutes'
Participating companies face tougher limits, including the recovery of bonuses or other pay based on innacurate or fraudulent earnings and a ban on "golden parachute" packages.
Help for homeowners
The government would be required to try renegotiating bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes.
Paulson now a bailout czar
The Treasury secretary must consult with a new oversight board but can buy mortgage assets - and any other financial instrument - from any financial institution that does business in the U.S.