WASHINGTON — Congress and the Bush administration reached tentative agreement early Sunday on a sweeping $700 billion rescue plan to take bad assets off the books of banks and other financial firms. The deal is expected to be put on paper in the course of the day and sent to legislators for debate and a vote later in the week.
The two sides were racing a self-imposed deadline to get a deal by 6 p.m. Eastern time before Asian financial markets opened for business. A deal was announced in the wee hours by tired, puffy-eyed lawmakers that had been working almost around the clock to reach accord.
As lawmakers neared the tentative deal, staff members had their phones confiscated to prevent leaks in what had become a heavily politicized negotiation. Lawmakers pledged to post a copy of the deal online later Sunday for an angry American public to take a look at the compromise ahead of a congressional vote.
A tentative deal had been announced last Thursday, only to have House Republicans balk. The new compromise gives Democrats more restrictions on the pay of Wall Street execs and a taxpayer stake if the program actually makes money. Republicans tacked on a parallel insurance plan that can work as an alternative to taxpayer funding and killed provisions that would have let federal judges modify distressed mortgages.
Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson have warned repeatedly that absent an urgent response, credit markets could collapse this week, punishing Wall Street and Main Street alike.
"The deal should go a long way to stabilizing financial markets and putting the financial system on what will be a long road to recovery," said Mark Zandi, chief economist of economic forecaster Moody's Economy.com.
Both Democrats and Republicans won language that they will trumpet on the campaign trail in weeks ahead, and the White House can breathe easier that a financial collapse may be averted, for now at least.
"Nobody got everything they wanted," said Rep. Barney Frank, D-Mass, chairman of the House Financial Services Committee and one of the architects of the compromise, in a C-Span appearance Sunday morning.
Specifically, the proposed compromise envisions:
-- $700 billion in a taxpayer rescue of Wall Street, with $250 billion available immediately, another $100 billion upon report to Congress and the final $350 billion available only upon action by Congress.
-- Money will be used to buy mortgage-backed securities and other troubled assets, taking them from investment banks, commercial banks, smaller community banks, pension plans and even local governments.
-- Government can use its power as the owner of the troubled mortgage bonds to facilitate modifications for the mortgages themselves.
-- Bipartisan oversight commission will monitor the program. If after five years there is a net loss to the taxpayers, president will have to submit legislative proposals to recoup funds from beneficiaries.
-- Democrats won new, unspecified restrictions on CEO pay and executive compensations for participating companies.
-- Republicans won language creating a parallel insurance program that companies can choose instead of giving up their bad assets.
-- Creation of warrants, which allows any windfall coming to participating companies to be shared with the government, thus the taxpayers.
-- Actions by Treasury will be posted online in real time.
--Judicial review of Treasurys actions.
The presidential campaigns welcomed the compromise on the Sunday talk shows and took credit for it even though Senate staffers say neither candidate was instrumental in getting a deal done.
In a statement, Democrat Barack Obama said it met the four core principles he laid out independent oversight, treatment of taxpayers as investors, measures to keep homeowners in their homes, and rules to prevent rewarding Wall Street CEOs from cashing in on the rescue.
"While I look forward to reviewing the language of the legislation, it appears that the tentative deal embraces these principles," said Obama. He later echoed that in an appearance on CBS's Face the Nation.
Republican John McCain, speaking on ABC's "This Week," said, "This is something that all of us will swallow hard and go forward with."
Staffers warned Sunday that while they are confident the deal will pass, it's no certainty. House Republicans must be convinced that taxpayers will not somehow wind up paying billions to executives. The real test of the package's strength is likely later Sunday when GOP leaders, who have been a thorn in their president's side, present it to members.
While House Republicans do not have enough votes to scuttle the package — Democrats have a majority of House seats — House Speaker Nancy Pelosi, D-Calif., said she wants about 100 GOP members to vote for it. Not only would that give the plan a bipartisan sheen, it would also give the Democrats political protection.
Should the financial market meltdown worsen despite passage of the rescue plan, Pelosi does not want Republicans pointing fingers and saying the Democratic plan sought by the White House was responsible.
Rep. Frank acknowledged the vote is unlikely to be wildly in favor of the rescue plan.
"I think it will get a majority, but it won't get a huge majority because this is not an easy thing to do," said Frank. He noted that from the standpoint of a lawmaker, doing the right thing will not get an angry public off their back. "In politics, if you keep something from getting worse, you don't get a lot of credit for it."
David Lightman contributed to this report.