Published September 29, 2008

Breakthrough for US$700b bailout plan

Tentative deal hammered out in US Congress to include the Treasury buying distressed assets, government stakes in bailout firms, curbs on executive pay

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(WASHINGTON) Congressional leaders and the Bush administration cobbled together a tentative agreement early yesterday on what may become the largest financial bailout in American history, authorising the Treasury to purchase US$700 billion in troubled debt from ailing firms in an extraordinary intervention to prevent widespread economic collapse.
At long last: Mr Paulson, flanked by Ms Pelosi and Senate Majority Leader Harry Reid, outlining the shape of the rescue

Officials had earlier said that congressional staff members would work through the night to finalise the language of the agreement and draft a bill, and that the bill would probably be brought to the House floor today.

But in a later development, aides to Democratic leaders in the House of Representatives said yesterday that the timing for the vote on the bailout bill has not yet been set. The House was scheduled to convene at 1pm. (1am Singapore time) but it was still unclear whether the financial industry rescue package would be ready for floor action on Sunday or whether the debate and vote would be put off until Monday. House Democrats and Republicans were expected to meet in separate closed-door meetings yesterday for briefings by their leaders on the tentative deal between Congress and the Bush administration.

The bill includes pay limits for executives whose firms seek help, aides said. And it requires the government to use its new role as owner of distressed mortgage-backed securities to make more aggressive efforts to prevent home foreclosures. In some cases, the government would receive an equity stake in companies that seek aid, allowing taxpayers to profit should the rescue plan work and the private firms flourish in the months and years ahead.

The White House also agreed to strict oversight of the programme by a congressional panel and to conflict-of-interest rules for firms hired by the Treasury to help run the programme.

As they approached a final deal, both sides appeared to have given up a number of contentious proposals, including a change in the bankruptcy laws sought by some Democrats to give judges the authority to modify the terms of first mortgages and a temporary suspension of mark-to-market accounting rules sought by some Republicans.

Congressional leaders and the treasury secretary, Henry M Paulson Jr emerged from behind closed doors at 12:30 am yesterday, after two days of protracted meetings.

'We have made great progress towards a deal, which will work and be effective in the marketplace,' Mr Paulson said at a news conference.

A senior administration official, who participated in the talks, said that the deal was effectively done and staff members would work overnight to work out technical details and finalise legislative language. 'I know of no unresolved open issues for principals.'

In the final hours of negotiations, Democratic lawmakers were carrying pages of the bill by hand, back and forth from House Speaker Nancy Pelosi's office, where the Democrats were encamped, to Mr Paulson and other Republicans in the offices of John Boehner of Ohio, the House minority leader.

At the same time, a series of phone calls was taking place, including conversations between Ms Pelosi and President Bush, between Mr Paulson and both presidential candidates, and between the two candidates and top lawmakers.

At one point, lawmakers consulted by phone with billionaire investor Warren Buffett, who last week invested US$5 billion in Goldman Sachs and warned that markets were in a 'dangerous situation' and on the verge of breaking down.

In announcing a tentative agreement, lawmakers and the administration achieved their goal of sending a reassuring message ahead of today's opening of the Asian financial markets. Lawmakers were also anxious to adjourn and return home for the fall campaign season.

Officials said that they had agreed to include a proposal by House Republicans for an alternative that gives the Treasury authority to issue government insurance for troubled financial instruments as a way of reducing the amount of taxpayer money spent up front on the rescue effort. Mr Paulson had expressed little interest in that plan, but its final details were not immediately available. -- NYT, Reuters