WASHINGTON — The Treasury's plan to spend up to $700 billion of taxpayers' money to bail out the nation's financial system was recognized as dead Wednesday as lawmakers in Congress made clear that they're going to make significant changes.
Treasury Secretary Henry Paulson, who has spent two days urging members to pass legislation quickly and cleanly, conceded Wednesday that any bill will have to have limits on executive pay at troubled firms and hinted he would accept other changes.
"The American people are angry about executive compensation and rightfully so," Paulson told the House Financial Services Committee.
His willingness to publicly agree to the pay provision was another strong sign that Congress and the administration were working toward the same goal — enactment of a major financial bailout package, and soon.
"It means we are closer," said Financial Services Committee Chairman Barney Frank, D-Mass. He predicted that House and Senate Democrats would have an agreement by Thursday to present to Republicans.
President Bush was to urge passage of a consensus plan in a nationally televised address Wednesday night.
Republican presidential candidate John McCain said he would suspend his campaign Thursday and head to Washington to help pass a bailout plan. He urged Democratic nominee Barack Obama to delay their first debate, scheduled for Friday night. Obama rejected the idea, saying voters need to hear from the presidential candidates now.
Members of Congress talked privately with administration officials throughout the day about changes to the plan. Several provisions sought by lawmakers from both parties were expected to be added, notably strong oversight of any bailout, more aid to homeowners facing foreclosure and possibly trimming back the cost of the package, at least initially.
"Over the last 24 hours, I've seen signs of greater cooperation from my colleagues in Congress," said Sen. Charles Schumer, D-N.Y., who's on the Senate Finance Committee. "Despite many of their well-founded reservations, (they) recognize the magnitude of the problems we face and the importance of getting something done."
One measure of Congress's disgust with the original Treasury plan came Wednesday when Federal Reserve Chairman Ben Bernanke and Paulson met privately with House Republicans. Afterward, Rep. Tom Davis, R-Va., said that only four members raised their hands at the end when there was a request for a show of hands for support of the original White House bailout proposal.
Instead, members worked to iron out a consensus plan.
Rep. Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee, said that Frank was including him in the discussions and that there was progress toward a bill. "There's a realization that we have to do something and that we can't leave town until we do," Bachus said.
A number of other ideas were surfacing, most aimed at reassuring taxpayers who've been flooding congressional offices with e-mails and phone calls, largely in opposition to the Treasury plan or simply puzzled as to whether or not they'd wind up bailing out renegade companies and executives.
"People are saying what does that have to do with me? The connection has not been made," said Rep. Maxine Waters, D-Calif. She brought together black and Hispanic business and community leaders in Washington to help push for more consumer aid.
House Republican leader John Boehner of Ohio had similar thoughts, saying that Americans are "furious" and are "trying to understand will this plan in fact work."
"Right now what we have before us is a 'trust me' proposal," said Rep. Deborah Pryce, R-Ohio, which she said wouldn't work because Americans' trust in the administration is broken.
"I want you to make the case to me so that I can make the case to my constituents," she told Paulson and Bernanke.
Despite his concession on executive pay, Paulson offered few other compromises to the House committee.
At one point, Rep. Gary Ackerman, D-N.Y., asked if he favored allowing courts to review a government action. The original Treasury plan would have barred courts from reviewing management of the bailout. A proposal authored by Senate Banking Committee Chairman Christopher Dodd, D-Conn., would allow a bailout decision to be overturned if it was "arbitrary, capricious, an abuse of discretion or not in accordance with the law."
Paulson would say only that details need to be negotiated. "We need to get the right balance," he said, without elaborating.
Rep. Carolyn Maloney, D-N.Y., asked Bernanke how he and Paulson came up with the $700 billion figure.
"It's not science to figure out how much is going to be needed to stabilize the firms and the markets," Bernanke said. "But there are various metrics one can use."
Among them, he said, is that "there's about $14 trillion outstanding of residential and commercial mortgages. So $700 billion is about 5 percent of that amount, which is similar to some of the loss rates we've seen in some of these categories."
He also said that assets of U.S. commercial banks are "in a similar $10 (trillion) to $12 trillion category," so the $700 billion "seems an appropriate size relative to the scale of the problem."
Many lawmakers were not convinced.
"Would there not be merit in considering an initial set of purchases of certain classes of troubled assets in the amount of, say, $100 billion?" asked Sen. Sam Brownback, R-Kan. "Then we could evaluate results, and move on with $100 billion worth of purchases of other classes of troubled assets."
Schumer pressed Bernanke hard on this point, asking him as an economist why $700 billion was necessary.
"You asked me my opinion as an economist," Bernanke said with a smile. "Unfortunately, this is a matter for psychology." A $700 billion federal commitment would reassure global financial markets that Washington was committed to the rescue in a way that $100 billion increments would not, he said.
But $700 billion, Schumer replied, "is an awful lot for psychological reassurance."
Members also were considering relief for homeowners with troubled mortgages, perhaps a multibillion-dollar fund that would allow them to refinance fixed loans that would be guaranteed by the Federal Housing Administration.
Meanwhile, Bernanke offered an unusually dismal picture of the economy in testimony before the Joint Economic Committee.
"Given the extraordinary circumstances, greater than normal uncertainty surrounds any forecast of the pace of the activity," the Fed chairman said, referring to future economic growth. "Financial stress could prove a significant drag on growth. The downside risks to the outlook thus remain a significant concern."
He predicted that the nation's gross domestic product "is likely to expand at a pace appreciably below its potential rate in the second half of this year, and then gradually pick up as financial markets return to more normal functioning and the housing contraction runs its course."
The economy's problems stem largely from the financial crisis, he said, "through several channels, most notably by restricting the availability of credit." He added that households "also appear to be having more difficulty of late in obtaining non-mortgage credit."
Agreement on details of a revised bailout proceeded slowly, and officials were starting to doubt that a package could be approved by the end of the week.
One scenario being pushed was for congressional leaders and the administration to announce an agreement in principle by Friday, and then enact it late next week, after a long weekend to give staff time to craft legislative language and let lawmakers go home to campaign. The November election is less than six weeks away.
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