senate leaders say agreement nears on rescue

By James Rowley and Alison Vekshin

Sept. 27 (Bloomberg) -- U.S. Senate leaders said they expect to hammer out a $700 billion bank-rescue package before financial markets start to open late tomorrow, even as House Republicans said they wouldn't be held to an ``artificial timeline.''

Leaders of both parties were meeting with Treasury Secretary Henry Paulson today to negotiate the details of his proposal to buy bad mortgage-related assets from financial companies reeling from record home foreclosures.

``It would be my hope that this could be resolved today, that we'd have a day for the American people and members of Congress to review the legislation on the Internet,'' said House Speaker Nancy Pelosi, Democrat of California. ``One thing is for sure, we are not leaving until this legislation is passed.''

Lawmakers are concerned that further delay on the week-old proposal will add to turmoil in global financial markets after the failure this week of Seattle-based Washington Mutual Inc., the largest U.S. bank ever to go bust. President George W. Bush, in his weekly radio address today, said that a rescue plan is needed to avoid ``a deep and painful recession.''

Democratic Senator Max Baucus of Montana said tonight that negotiators are ``making a lot of headway.''

Derailed

A group of House Republicans who derailed a deal this week were still holding out, saying the proposal being hammered out between the Democratic leadership and the White House is too costly and makes average Americans foot the bill for poor decisions made by Wall Street investors.

``We will not agree to a bill that bails out Wall Street at the expense of taxpayers,'' said House Republican leader John Boehner of Ohio. The lead negotiator for House Republicans, Missouri Representative Roy Blunt, said the caucus is ``not moving on any kind of artificial time line.''

Luring the support of House Republicans is important because, while Pelosi commands a 235-199 House majority, many Democrats might oppose the bill if Republicans make the bailout an issue in the campaign for the Nov. 4 elections.

Pelosi said yesterday that ``we simply would not have the votes to pass it'' if most Republicans vote no.

Paulson's proposed bailout has sparked outrage among voters, who have flooded the offices of their representatives with telephone calls, letters and emails opposing it. Fifty-five percent of Americans say it's not the government's responsibility to bail out private companies with taxpayer dollars, according to a Bloomberg/Los Angeles Times poll released Sept. 23.

Democratic Demands

Democrats in Congress have demanded changes to Paulson's initial proposal, including oversight of the process of buying assets, limits on executive compensation at companies that benefit from the bailout, and a program to help homeowners avoid foreclosure. Democrats have also pushed to give bankruptcy judges the authority to alter mortgage terms.

House Republicans said they won't support the legislation unless it includes an alternative provision for government insurance for mortgage-backed securities, a concept that Paulson rejected before he presented his plan to Congress. Delaware Republican Mike Castle called such a provision ``a prerequisite among House Republicans to get those votes.''

House Financial Services Chairman Barney Frank, the House Democrats' chief negotiator, said the Republican insurance proposal ``could be useful'' as part of the plan to buy illiquid assets. Still, Republican Jeb Hensarling of Texas called the Democratic proposal to make the insurance provision an optional part of the package ``a nothing kind of offer.''

Details

Congressional staff worked until about 3 a.m. Washington time this morning negotiating the details of the plan, and there are ``probably 15 issues still left outstanding'' that lawmakers have to resolve, said Senate Majority Leader Harry Reid of Nevada. Reid said he hoped a deal could be struck by 6 p.m. tomorrow.

Negotiations on the Bush administration's plan were derailed earlier this week after House Republicans balked and put forth their insurance proposal.

Under a tentative agreement reached among Democrats and Senate Republicans and the administration, Congress would authorize an immediate expenditure of $250 billion for the Treasury to buy distressed debt securities plus another $100 billion at the government's disposal. Another $350 billion could be spent to buy troubled assets unless Congress specifically acts to bar that authority.

Restrictions on executive compensation by participating financial firms is a ``sticky'' issue in the talks, New York Democratic Senator Charles Schumer said today.

A participant in some negotiations said Treasury is very reluctant to add limits on executive pay and has agreed only when more than 20 percent of total assets were acquired by the government.

Frank yesterday said that Paulson had agreed to equity stakes for taxpayers in the companies through warrants.

To contact the reporters on this story: Alison Vekshin in Washington at [email protected]; James Rowley in Washington at [email protected]

Last Updated: September 27, 2008 20:19 EDT