Congress wrestles with Wall Street bailout package

The on-again, off-again agreement on a national financial rescue plan reveals the thorny political problem now facing Congress: How do you bail out deeply unpopular Wall Street firms without incurring the wrath of voters six weeks before an election?

It's likely to be an equally difficult vote for many members of Congress, who have been deluged with protests from voters over the prospect of a taxpayer-funded rescue package.

“I don’t believe we have an agreement,” said Sen. Richard Shelby (R) of Alabama, the top Republican on the Senate Banking panel, after Thursday’s White House meeting.

But just hours before that meeting to break a deadlock over a historic bailout of US financial markets, congressional negotiators announced that there was no deadlock.

“We’ve reached a fundamental agreement on a set of principles,” said Sen. Christopher Dodd (D) of Connecticut, who chairs the Senate Banking, Housing and Urban Affairs Committee, flanked by other senior members of House and Senate banking panels.

“I now expect we will indeed have a package that can pass the House, pass the Senate, and be signed by the president,” added Sen. Robert Bennett (R) of Utah.

Just minutes after that midday announcement, the top House Republican on the banking panel split ranks, however. “There was not a deal made,” said Rep. Spencer Bachus (R) of Alabama, in comments to reporters just off the House floor. “There was progress on the issues.”

At issue are two narratives that converged at the White House today: One is how to rescue a battered financial market; the other, how to revive a slumping presidential campaign.

Key lawmakers on Capitol Hill moved quickly this week to come to terms on a sweeping $700 billion bailout. Conservatives on both sides of the aisle balked at the size of the bailout and the vast expansion of government authority that it implied. Lawmakers across the spectrum worried that the Treasury Department’s three-page plan included no oversight ¬ and even ruled out challenges from the court.

Both the Senate and House produced draft bills, but wide areas of disagreement persisted.

Without releasing details of their proposal, which they said had yet to be vetted with the Treasury Department, lawmakers said they had come to terms on four contested areas. These include: authority for the Treasury Secretary to rid financial markets of “toxic” assets, limits on CEO compensation for companies seeking taxpayer help, new oversight capacity, and provisions for homeownership preservation.

“We’re in a serious crisis if we don’t pass legislation,” said President Bush said at the opening of Thursday’s meeting, which included presidential contenders John McCain and Barack Obama, as well as top congressional leaders.

“All of us around the table take this issue very seriously, and we know we have to get something done as quickly as possible. My hope is that we can reach an agreement very shortly,” Mr. Bush said.

Whatever the outcome, it’s likely to be a tough vote for many members of Congress, who have been deluged with protests from voters over the prospect of a taxpayer funded bailout for Wall Street. The most conspicuous holdouts have been House Republicans, who have met five times as a group times in the last 48 hours over the issue.

“When we’re dealing with something this important, it’s important to have alternatives,” said Michael Steel, a spokesman for House Republican leader John Boehner.

Soon after Senator Dodd and others announced a deal on a bailout, House Republicans released their own recovery plan, which opts for mortgage insurance, rather than an outright government purchase of troubled assets, to calm troubled markets.

“The purpose is to try to break the logjam so we can leave here Sunday with a bill passed that frankly puts the onus on Wall Street, not the taxpayers who have lived by the rules, in order to fund this recovery,” says Rep. Eric Cantor (R) of Virginia, who headed the 10-member working group.

“We’re reaching out not only to members on our side of the aisle, but also to Democrats. We found a lot of positive reception to this notion: That families in this nation … should not have to pay to bail out Wall Street,” he added.

Instead of a $700 billion bailout, House Republicans propose an insurance plan, similar to what the Government National Mortgage Association (Ginnie Mae) already does to help mortgage lenders in low-income areas. “Currently, the federal government insures approximately half of all mortgage-backed securities (MBS). We can insure the rest of current outstanding MBS; however, rather than taxpayer funding insurance, the holders of these assets should pay for it,” the group said in a statement.

In the run-up to Thursday’s meeting, both Speaker Pelosi and Senate majority leader Harry Reid said that they would not bring a bailout plan to the floor without a significant number of Republican votes – about 110 in the House and 30 in the Senate. That’s the key target group for the Bush White House – and, more recently, Senator McCain – in a bid to pass a bailout bill as early as this weekend.

“People agree that inaction is not an option, but I also believe that there is a broad agreement that the Paulson plan is not the only plan,” says Rep. Jeb Hensarling (R) of Texas, who heads the conservative Republican Study Group.