WASHINGTON — After a tumultuous week of round-the-clock negotiations, Congress prepared for a difficult vote Monday on a sweeping $700 billion Wall Street rescue plan to stave off a possible global financial meltdown.
The plan had GOP support in the Senate, but substantially less Republican support in the House of Representatives.
Racing a self-imposed 6 pm EDT deadline Sunday night ahead of the opening of Asian financial markets, bleary-eyed Democrats in control of Congress released the text of the Emergency Economic Stabilization Act of 2008.
Democratic and Republican leaders worked through the night this weekend to modify a plan put forth by Treasury Secretary Henry Paulson to remove distressed mortgages and similar toxic assets off the books of banks and other financial firms. Paulson had warned that credit markets are on the verge of seizing up, with grave consequences for consumer lending of all sorts.
"I am confident this legislation gives us the flexibility to unclog our financial markets increase the ability of our financial institutions to deliver the credit that will help create jobs," Paulson said in a statement that praised lawmakers for their tough decision. "We are taking the steps needed to be ready to begin implementing this legislation as soon as it is signed."
President Bush said in a statement Sunday night, "this plan sends a strong signal to markets around the world that the United States is serious about restoring confidence and stability to our financial system."
In detailing legislation that grew to more than 100 pages from its original three, lawmakers Sunday afternoon chose their words carefully to let angry American voters know they'd been heard.
"It's very clear that Americans have some reason to be concerned, even angry about where we find ourselves. We know there has been greed on Wall Street," said Senate Majority Leader Harry Reid, D-Nevada.
But the cost of doing nothing was greater than what is being proposed, he said.
"Inaction would paralyze our economy, even now it is difficult for people to get a car loan," Reid said, adding that "the market is frozen in terms of buying homes in many parts of our country."
House Speak Nancy Pelosi, D-Calif., sought to assure Americans that their tax dollars weren't rescuing the well heeled on Wall Street.
"People have to know this is not a bailout of Wall Street, it's a buy-in," said House Speaker Nancy Pelosi, D-Calif., in a Sunday afternoon news conference that touted taxpayer protections and an effort to limit the compensation of some Wall Street executives who might partake in the rescue effort..
One of the lead GOP negotiators, Sen. Judd Gregg, R-NH, said he was confident the measure would attract enough members of his party in both chambers of Congress to win passage later in the week.
"I think everybody got what they needed to have," he said.
Members of both parties supported measures to prevent so-called golden parachutes when a Wall Street executive departs. If a company has had government intervention, the five highest-ranking officials in that company will be denied bonus and incentive pay. And if a company sells as a whole $300 million or more in bad assets, there will be similar restrictions.
Additionally, companies taken over by the government or receiving significant support will have to give Treasury preferred stock that could be sold later when the company recovers, to the benefit of U.S. taxpayers.
As lawmakers neared the tentative deal, staff members had their cell phones confiscated to prevent leaks in what had become a heavily politicized negotiation. Lawmakers quickly published a copy of the deal online Sunday as night fell, giving an angry American public a look at the compromise ahead of a congressional vote. But computer servers crashed under the weight of so many requests to access the site.
A tentative deal had been announced Thursday, but then House Republicans balked. 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.
The rescue effort won't fix all that is wrong with the slumping U.S. economy, but it seeks to keep things from getting worse fast.
"It's mostly is a stop-gap to get through the election and let the next president deal with it. You've got to get the housing market stabilized and manage to get the economy growing," said David Wyss, chief economist for rating agency Standard & Poor's in New York. "This makes it more likely that it will be a mild recession, not a deep recession."
In a statement, Treasury Secretary Henry Paulson said the legislation would provide "meaningful assistance" to financial markets.
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.
Specifically, the proposed legislation would provide:
- $700 billion to help Treasury buy bad assets from banks and other financial firms, with $250 billion available immediately, another $100 billion upon report to Congress and the final $350 billion available only upon action by Congress.
- Money to 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 the power as the owner of the troubled mortgage bonds to facilitate modifications for the mortgages themselves.
- A bipartisan oversight commission to monitor the program. If after five years there is a net loss to taxpayers, president will have to submit legislative proposals to recoup funds from beneficiaries.
- New restrictions on CEO pay and executive compensation for some participating companies, a point demanded by Democrats.
- A parallel insurance program that companies can voluntarily choose instead of giving up their bad assets, a point demanded by House Republicans.
- 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 Treasury's actions.
The presidential campaigns welcomed the legislation 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." His running mate Sarah Palin credited McCain for the leadership that made a deal possible.
"I'm glad that John McCain's voice was heard," she said.
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 House vote may be close, since lawmakers will get little reward for doing the right thing.
"In politics, if you keep something from getting worse, you don't get a lot of credit for it," he said in a C-Span cable interview.
(David Lightman and Lisa Zagaroli in Washington contributed)