Sunday, September 28, 2008

Tenative Agreement on Bailout

Washington, D.C. - Key lawmakers in Congress have reached a tentative agreement on a bailout proposal that they expect to roll out to their colleagues for final approval Sunday morning. "We've made great progress toward a deal which will work and be effective in the marketplace," Treasury Secretary Henry Paulson, flanked by a bipartisan group of lawmakers, told reporters at 12:30 a.m. Sunday--after nine hours of negotiations that included numerous phone calls with the White House and the input of several top economic minds, including billionaire investor Warren Buffett.

"We've still got more to do to finalize it, but I think we're there," Paulson added. "So far, so good." The "agreement in principle," as Sen. Kent Conrad, D-N.D., described it, is a $700 billion plan that will allow the Treasury Department to buy troubled mortgage-backed securities from firms that are having difficulty selling these assets in the marketplace.

The bailout, to be financed by government bonds, includes provisions to limit executive compensation for the firms that are being bailed out, an equity stake in those firms for taxpayers, an oversight board to account for the bailout process, and a measure to help prevent mortgage foreclosures. The $700 billion will be doled out in tranches of $250 billion immediately, $100 billion upon the approval of the president and $350 billion upon the approval of Congress.

Lawmakers also said there is language in the plan to allow the government to recover some of the money it is spending to buy troubled assets, as well as a provision that allows firms to buy insurance for toxic securities--something House Republicans had requested.

Is it a formal deal? As close to one as lawmakers could hash out, following marathon negotiations. Congressional staff members are working through the night to put the agreement on paper so other members of Congress can examine it before giving it final approval Sunday.

A deal had appeared within grasp Thursday afternoon but fell apart that night when a group of House Republicans issued a rival plan. Under their proposal, companies would pay premiums to insure their frozen mortgage-backed securities, instead of having the Treasury use taxpayer dollars to buy them. In addition, the plan--the fine details of which are still vague at this point--would provide some companies with tax relief, remove unspecified banking regulations and allow them to temporarily suspend dividend payments to free up capital.

Asked after the meeting if the expanded mortgage insurance program needed to be in a compromise, House Minority Leader John Boehner, R-Ohio, said "Our goal here in attempting to come to an agreement is to do our best to protect the American taxpayer."

Sen. Chris Dodd, D-Conn., and Rep. Barney Frank, D-Mass., the respective chairmen of the House and Senate committees for banking, are continuing to support a modified version of the original $700 billion "Paulson Plan," as the administration's proposal has become known. Blunt participated in negotiations Friday and Saturday for House Republicans. Sen. Bob Corker, R-Tenn., said he's "very, very optimistic" that a deal will be worked out, and he's hopeful it will happen over the weekend.

Sen. Judd Gregg, R-N.H., says he believes distressed credit markets Friday morning may have shown lawmakers that there is not much time for discussion. "They're telling us we better do something," says Gregg, who will represent Senate Republicans in the negotiations.

The message that Paulson's plan is aimed at restoring liquidity is getting through to lawmakers. "We don't have a solvency problem, what we're trying to do is to restore liquidity," says Scott Talbott, senior vice president for government affairs at The Financial Services Roundtable, a banking-industry trade association that supports the basic idea of the Paulson Plan.

"I think the chances of it happening are excellent," Talbott says. "The goal is to try to get it done by Sunday, but it could easily slip a little into next week."
When President Bush said Friday morning that "the legislative process is sometimes not very pretty," it was the understatement of the year. And on the eve of the election, there's plenty of political gamesmanship, and even brinksmanship, on display.

Democrats want to stay as far away from being held responsible for the bailout as possible, and may not vote on the bill unless a majority of Republicans will also support. House Republicans can now say that at least they tried an alternative. It was likely that something akin to the Paulson plan--with a few add-ons to soothe reluctant Republicans and Democrats--would emerge over the weekend as the final bailout bill.

White House talks with lawmakers last night erupted into a "shouting match," according to one report. The top Republican on the Senate Banking Committee, Sen. Richard Shelby of Alabama, emerged from the discussions to tell reporters that there was no deal, contrary to what some members of Congress said earlier in the day.

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