The bailout: Will the center hold?
Proofreading and some heavy-duty political marketing are the next big steps for Treasury’s $700 billion rescue plan as House and Senate leaders take their agreement back to their restless caucuses — split on the left and right.
House Republicans are the biggest test, with conservatives still rebellious. But Democrats have their own problems and moved quickly to emphasize Wall Street reforms, new protections for homeowners and an elaborate financing scheme that would allow a future Congress to cut off the funding after the first $350 billion commitment.
“If we don’t pass it, we shouldn’t be in Congress,” snapped Sen. Judd Gregg (R-N.H.), the lead negotiator for Senate Republicans.
But from the moment House Speaker Nancy Pelosi brought down the gavel Sunday, a parade of conservatives and liberals were on their feet bashing the deal. And the political center may be defined by the two major presidential candidates, John McCain and Barack Obama, who both signaled support for the package.
As sitting senators from Arizona and Illinois, McCain and Obama will be asked to vote themselves when that chamber takes up the legislation later this week. But the House, which hopes to act as early as Monday, will be the true test of their influence in their parties.
“The breakthrough between Congress and the administration is the culmination of a sorry period in our history, in which reckless speculation and greed on Wall Street and lax oversight from Washington led to a meltdown of our financial markets,” Obama said. “But regardless of how we got here, a failure to deal with the current crisis would have devastating consequences for our economy, costing millions of Americans their jobs and retirement security.”
McCain, appearing later on ABC News’ “This Week,” said he wanted still to see details, but “hopefully, yes” would back the bill.
“This is something that all of us will swallow hard and go forward with,” McCain said.
Following marathon negotiations that ran past midnight, the agreement now is taking shape in the form of an estimated 106-page bill that the leadership hopes to finalize and post on the House Web site Sunday afternoon.
Treasury would like to see prompt Senate action as well, but given the Jewish holiday of Rosh Hashanah beginning at sundown Monday, a final vote could very well wait until Wednesday or Thursday.
Republican Whip Roy Blunt, the chief negotiator for the House GOP, said he wanted to first see the final text before committing himself, but the Missouri Republican said he was optimistic that it will be something his party can support. All indications early Sunday were that Blunt and House Minority Leader John Boehner (R-Ohio), both of whom were praised by McCain, were working to tamp down the opposition among conservatives.
“I’m not sure yet we can sell it to our conference, but I’m 100 percent sure that this is the best deal we could get,” said a Republican aide.
Business lobbies stepped up their pressure in anticipation of a party meeting on the bill late Sunday.
“Main Street and Wall Street are inextricably linked,” wrote the U.S. Chamber of Commerce in a vote alert Sunday, urging passage and warning it may count the House vote in its annual scorecard. “This proposal addresses the needs of both and will not only begin the process of righting the financial markets, but help to return the economy to robust growth, which will create jobs across America.”
“We’ve still got more to do to finalize it, but I think we’re there,” Treasury Secretary Henry Paulson said in announcing the verbal agreement at 12:30 Sunday morning – the cap on a remarkable week of intense activity for both lawmakers and himself.
By Paulson’s side, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, joked that no solution to a problem could be “more elegant” than the problem itself, and certainly the huge credit crisis facing the American economy is brutal in its scope.
The massive government intervention, like the crisis itself, takes everyone into uncharted waters. And in crafting the bill, lawmakers found themselves scared by what they were asked to do, even as they were trying to calm frightened markets.
“There is some tension between the needs of the members and the needs of the markets,” Frank said of his partnership with Paulson “He thinks neurosis on the part of the markets deserves more credibility that neurosis on the part of elected officials and getting a bill past.”
The final bill reflects this tension, and while final details have not yet been released, following is a brief summary as described by the administration and lawmakers:
• The full $700 billion is authorized, but the money will be parsed out in a series of installments that give Paulson a relatively free hand in accessing the first $350 billion. The White House must notify Congress when Treasury wants the second half, and lawmakers would then have 15 days in which to cut off funds. But this must be done in the form of a joint resolution, subject to a veto by the president and therefore requiring a two-thirds majority in both houses to be effective.
• Paulson’s free hand on spending is matched by substantially greater oversight of the program than Treasury first envisioned, as well as demands for greater transparency, including the posting of transactions on line. Apart from a new oversight board appointed by the bipartisan leadership in Congress, the GAO will have a presence in Treasury, and an independent inspector general will monitor the secretary’s decisions.
• Lawmakers won the promise of new restrictions on executive pay and severance packages for Wall Street executives whose companies are helped by the rescue plan. And the bill reflects a more aggressive approach toward Treasury also claiming an equity interest — on behalf of taxpayers — through warrants giving the government options for non-voting stock shares that could turn a profit once the economy improves.
The precise language of the executive pay provision was one of the most hotly contested issues, and the final deal rests on Paulson being more aggressive than he first wanted, but also on lawmakers’ giving him some discretion so that these reforms don’t cripple his ability to draw a wide selection of companies into the program.
The bill takes a hybrid approach, and in the case of assets bought at auction, the most severe penalties kick in only when Treasury has bought more than $300 million in assets. At that juncture, a 20 percent surtax would be imposed on rich severance packages, and in the case of highly paid executives, the company would lose its deduction for salaries above $500,000.
• There is a joint commitment by Democrats and Paulson to use the government’s increased leverage in the mortgage market to help homeowners facing foreclosure. Democrats stepped back from their demands for a change in law allowing bankruptcy judges to restructure residential mortgage payments, but the bill extends a popular tax provision to protect individuals from tax liability on their foreclosures.
• On two key points, final compromises were required for competing priorities between House Democrats and Republicans. In the first case, Democrats had proposed that the Treasury be required to impose a fee on Wall Street transactions to help cover the cost of any government losses as a result of the rescue plan. But Republicans and Treasury resisted, and the final compromise calls for the next president to submit a legislative proposal to Congress in five years, after some assessment can be made of the costs to the government.
The second compromise dealt with a Republican proposal that the government intervene in the markets, not by buying up bad assets but by providing a federally backed insurance program that might make the same mortgage-related securities more salable. The compromise reached would require Paulson to “establish” such an insurance alternative if he goes ahead with his plan, but he is not compelled to use the insurance option.
• Early Republican demands for added tax cuts were not successful, but the bill includes an estimated $3 billion provisions to help small community banks take a deduction for losses from their investments in the two mortgage giants, Fannie Mae and Freddie Mac, since taken over the government this summer.
House GOP leaders had warned Saturday evening that they would need to take any deal to their rank-and-file members before committing to back it.
Racing to reach a deal before the markets open Monday, lawmakers met late into the night in Pelosi’s Capitol office. Paulson set up a sort of command center in Boehner’s office, with legislators and staffers criss-crossing Statuary Hall as they shuttled back and forth.
As the talks neared 10 p.m., Paulson could be seen through the windows of Boehner’s second-floor office, sitting on a sofa flanked by aides in chairs around the room. Pelosi passed through a hallway with her son. Asked if a deal would come together before the night was over, she said, “I hope so.”
Just before 11 p.m., Paulson, the two principal GOP negotiators – Blunt and Gregg – Emanuel, Pelosi chief of staff John Lawrence and White House legislative affairs aide Dan Meyer walked into Pelosi’s office.
In a sign that negotiations were growing serious earlier in the evening, a Pelosi aide collected BlackBerrys from the staffers meeting in her office so that no details would leak out.
Just after 8 p.m., pizzas arrived at Paulson’s HQ in Boehner’s office. Democratic staffers ordered in burgers from Five Guys.
"This is Saturday night,” said Senate Budget Committee Chairman Kent Conrad (D-N.D.) “You have the secretary of Treasury. You have congressional leaders. You have committee chairmen of all the committees of jurisdiction. And we are here. There’s a reason we’re here — because there’s a great feeling of responsibility to get a package as quickly as we can while doing it as well as we can."
While the meeting in Pelosi’s office was supposed to include just Paulson and the principal negotiators – Blunt, Gregg, Frank and Sen. Chris Dodd (D-Conn.) — a substantial number of Senate Democrats were there as well.
Republicans complained that the presence of the additional Democrats was making the process more difficult; by setting up shop in Boehner’s office, Paulson was able to get some breathing room after spending hours in close quarters, where at times he was hectored by some of the Senate Democrats.
Earlier in the day Saturday, Boehner had gone before the TV cameras to say that House Republicans would not agree to a bill “that bails out Wall Street at the expense of American taxpayers.”
"Somebody, maybe it was Einstein, said things should be done as quickly as possible, but no quicker than possible," said Blunt, who added: "We're not moving on any kind of artificial timeline. We're moving toward the very best solution in the shortest period of time."
But there was also a new sense of urgency to the negotiations Saturday – and increasing pressure on the House GOP.
President Bush pushed for a deal in his weekly radio address. The editorial page of the Wall Street Journal — influential with conservative Republicans — said a bailout was needed “to avoid a deeper downturn.”
Sen. Bob Bennett (R-Utah) warned publicly that another major U.S. bank was “teetering” on the edge of failure, and Republican Senate leaders — plus GOP Sens. Pete Domenici (N.M.), John Sununu (N.H.) and Gregg — laid out doomsday scenarios in a Republican Senate Conference meeting.
Sources said Saturday afternoon that as many as 40 Republican senators were prepared to vote for the emerging bailout deal if bankruptcy and social spending provisions are dropped. And while McConnell was not yet ready to abandon House Republicans — or McCain — sources said his views might change if there were still no deal by Sunday evening.
For his part, McCain – fresh off his debate with Obama in Mississippi – spent Saturday calling House Republicans to test support for the rescue plan, according to one lawmaker who was contacted. In addition to President Bush and Paulson, the McCain campaign said the Arizona senator had been in touch with McConnell, Gregg, Sen. Jon Kyl, Boehner, Blunt and nine other House Republicans.
As his colleagues worked on the deal at the Capitol Saturday night, McCain and his wife, Cindy, dined with Sen. Joe Lieberman and his wife, Hadassah, at Cafe Mozu inside Washington’s Mandarin Oriental Hotel.
Obama was at a dinner in Washington for the Congressional Black Caucus. Earlier in the day, his campaign said, he had talked by phone four times with Paulson and had made calls to Pelosi, Reid, Sen. Chuck Schumer (D-N.Y.) and others involved in the negotiations.
Correction: Based on an erroneous pool report, an earlier version of this story said that the McCains and the Liebermans dined at CityZen Saturday night. In fact, they ate at Café Mozu, a less formal restaurant at the Mandarin Oriental Hotel.