U.S. congressional leaders and the White House agreed Sunday to a $700 billion US rescue of the ailing financial industry after lawmakers insisted on sharing spending controls with the Bush administration.
The biggest U.S. bailout in history won the tentative support of both presidential candidates and the legislative bill goes to the House of Representatives for a vote Monday. If passed, it would then go to the Senate for approval and would then have to be signed into law by President George. W. Bush, who is expected to comment on the plan early Monday before U.S. financial markets open.
Asian stock markets rose following the announcement.
The plan, bollixed for days by election-year politics, would give the administration broad powers to use taxpayers' money to purchase billions upon billions of home mortgage-related assets held by cash-starved financial firms.
Flexing its political muscle, Congress insisted on a stronger hand in controlling the money than the White House had wanted. Lawmakers had to navigate between angry voters with little regard for Wall Street and administration officials who warned that inaction would cause the economy to seize up and spiral into recession.
The bailout, the largest government intervention in financial markets since the Great Depression of the 1930s, casts Washington's long shadow over Wall Street. The government would take over huge amounts of devalued assets from beleaguered financial companies in hopes of unlocking frozen credit.
"I don't know of anyone here who wants the centre of the economic universe to be Washington," said a top negotiator, Senator Christopher Dodd, chairman of the Senate banking, housing and urban affairs committee. But, he added, "The centre of gravity is here temporarily … God forbid it's here any longer than it takes to get credit moving again."
The plan would let Congress block half the money and force the president to jump through some hoops before using it all. The government could get at $250 billion US immediately, $100 billion US more if the president certified it was necessary, and the last $350 billion US with a separate certification — and subject to a congressional resolution of disapproval.
Still, the resolution could be vetoed by the president, meaning it would take extra-large congressional majorities to stop it.
Final deal days away
Lawmakers who struck a post-midnight deal on the plan with Treasury Secretary Henry Paulson predicted it would come to a House vote on Monday. Final congressional action might not come until Wednesday.
The proposal is designed to end a vicious downward spiral that has battered all levels of the economy. Hundreds of billions of dollars in investments based on mortgages have soured and cramped banks' willingness to lend.
"This is the bottom line: If we do not do this, the trauma, the chaos and the disruption to everyday Americans' lives will be overwhelming, and that's a price we can't afford to risk paying," Senator Judd Gregg, the chief Senate Republican in the talks, told the Associated Press. "I do think we'll be able to pass it, and it will be a bipartisan vote."
A breakthrough came when Democrats agreed to incorporate a Republican demand — let the government insure some bad home loans rather than buy them. That would limit the amount of federal money used in the rescue.
Plan for recouping losses
Another important bargain, vital to attracting support from centrist Democrats, would require that the government, after five years, submit a plan to Congress on how to recoup any losses from the companies that got help.
"This is something that all of us will swallow hard and go forward with," said Republican presidential nominee John McCain. "The option of doing nothing is simply not an acceptable option."
His Democratic rival, Barack Obama, sought credit for taxpayer safeguards added to the initial proposal from the Bush administration. "I was pushing very hard and involved in shaping those provisions," he said.
Later, at a rally in Detroit, Obama said, "it looks like we will pass that plan very soon."
House Republicans said they were reviewing the plan.
As late as Sunday afternoon, Republicans regarded the deal as "a proposal that is promising in principle, but that is still not final," said Antonia Ferrier, a spokeswoman for Missouri Rep. Roy Blunt, the top House GOP negotiator.
Executives whose companies benefit from the rescue could not get "golden parachutes" and would see their pay packages limited. Firms that got the most help through the program — $300 million US or more — would face steep taxes on any compensation for their top people over $500,000 US.
The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies' future profits.
To help struggling homeowners, the plan would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes.
But Democrats surrendered other cherished goals: letting judges rewrite bankrupt homeowners' mortgages and steering any profits gained toward an affordable housing fund.
House Speaker Nancy Pelosi shepherded the discussions at key points and cut a central deal Saturday night — on companies paying back taxpayers for any losses — that gave momentum to the final accord.
An extraordinary week of talks unfolded after Paulson and Ben Bernanke, the Federal Reserve chairman, went to Congress 10 days ago with ominous warnings about a full-blown economic meltdown if lawmakers did not act quickly to infuse huge amounts of government money into a financial sector buckling under the weight of toxic debt.