Congress is wary of the push to bail out Wall Street

Lawmakers are watching the stock market as an indicator of whether to buy Bush's plan.

In its push for a quick, clean $700 billion rescue plan for US financial markets, the Bush administration is invoking a powerful, if volatile, ally: the Wall Street ticker tape.

The market reaction to the ups and downs of negotiations over the bailout hovers over negotiations this week like a Greek chorus – or, as one congressional aide put it, a sword of Damocles.

The narrative runs something like this: Last week on Monday, the market drops 504.48 points, reacting to a failure of the Federal Reserve to offer Lehman Brothers a buyout. It plunges 449.36 points on Wednesday, after the $85 billion bailout of insurance giant American International Group (AIG) "rattles" investors.

But the market rebounds 410.03 points on Thursday, after news leaks that the Treasury Department is about to propose a $700 billion bailout to purge toxic assets from US credit markets. On Friday, markets jumped another 368.25 points, as Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke launched talks over the plan on Capitol Hill. They warned of dire consequences if Congress did not move on the plan this week.

In usual times, the four-page plan with its 12-digit price tag, including immunity from court challenges, would have been a nonstarter on Capitol Hill. But the prospects of another market meltdown if Congress balked at the bill put lawmakers on both sides of the aisle on high alert.

"Once the secretary of the Treasury and the chairman of the Federal Reserve say to you: 'If you don't do this, there will be chaos'; then if you don't do this, there will be chaos – even if there wasn't going to be before," said Rep. Barney Frank, chairman of the House Financial Services Committee in comments to reporters off the floor of the House on Monday.

"Once they surfaced [details of the bailout plan], the options get limited, because now we're not simply not doing it, we're refusing when they say it's essential," he added.

By end-of-day on Monday, the market had dropped 372.75 points, over reports that Congress was balking at the bill. On Tuesday, markets dropped another 161.52 points after Secretary Paulson and Chairman Bernanke faced congressional critics for the first time in a public hearing.

But it wasn't a rout, and critics of the bill took heart that the markets were giving them more time.

"The stock market dropped significantly, then it went up on the basis of what appeared to be good news on a bailout," said Sen. Ben Nelson (D) of Nebraska. "We're being pushed to do it quickly, and my colleagues and I want to be sure it's done right."

Much of the pushback on the bailout plan this week came from the Republican side of the aisle. GOP conservatives balked at the size of the bailout and the enormous new clout it gave to a federal government that many of them had campaigned to shrink. Republicans complained that the Bush administration had not kept them informed last week – and left them more vulnerable in upcoming national elections.

"Are we going to let the stock market going up and down control what we do here?" asked Sen. George Voinovich (R) of Ohio, after meeting with Secretary Paulson and the Republican caucus on Tuesday.

"The financial community should feel very good that on a bipartisan basis we are coming together to try and come up with something that is going to make a difference," he added. "That should hold them in abeyance for a while. But for us to do something tomorrow without getting more of the details on it, I think will cause the American people to wonder if we are really doing our work."

Democratic leaders in both the House and Senate warned that they would not move a bailout plan without significant Republican support.

"He's going to work as quickly as possible, but he's not going to be rushed into anything," said Jim Manley, a spokesman for Senate majority leader Harry Reid.

"We're going to insist on as much oversight as possible. The president is not going to get a blank check," he added.

Had the market plunged more dramatically this week, the pressure on lawmakers to move quickly on this bill could have been more decisive, Congress watchers say.

"If the markets had dropped 500 points a day for five days, then Paulson's request that they act on this simple bill to give them unilateral authority might even have had a chance of success," says Norman Ornstein, senior fellow at the American Enterprise Institute in Washington.

"But clearly the degree to which there is an urgency to act immediately had an impact on how much you raise concerns," he added.

"Members care about this stuff, and [the Bush administration] is going to have to deal with it. You can't decide something on your own and assume it to happen," said Sen. Christopher Dodd (D) of Connecticut, who chairs the Senate Banking, Housing and Urban Affairs Committee.

"[Members of Congress] recognize that we need to do something and are not just going to do anything," he adds. "Now the question is: Are we smart enough to put together a process here that allows us to come up with an answer that will satisfy the gravity of the situation, give [Paulson] the tools he needs, and protect the accountability questions and the taxpayer? I think we can."

"We're used to big numbers these days, but $700 billion was a shock," said Rep. Jeff Flake (R) of Arizona, after a session with Vice President Cheney and House Republicans over the bailout plan on Tuesday. "We were told to pass it in a week or else. But I think the vice president found it tough to make converts. There were a lot of skeptics in the room."