Negotiators reach breakthrough on bailout

Following marathon talks, congressional negotiators early Sunday announced that a framework had been established for a $700 billion Wall Street rescue plan.  

Emerging at 12:28 a.m. from a nine-hour meeting in House Speaker Nancy Pelosi's (D-Calif.) office, principal negotiators said they expect to put the finishing touches on a deal later in the day.

{mosads}The breakthrough was announced in a mostly-deserted Capitol and accompanied by smiles, handshakes and hugs.

“We’ve made great progress toward a deal which will work in the marketplace and be effective,” said Treasury Secretary Henry Paulson, flanked by Pelosi and Senate Majority Leader Harry Reid (D-Nev.). “We’ve still got more to do to finalize it, but I think we’re there. So far, so good.”

House Minority Whip Roy Blunt (R-Mo.), who is representing House Republicans in the talks, expressed similar optimism.

“We’ll be looking at the final wording tomorrow, but I think we’re going to be able to have an announcement,” Blunt said.

Reid called the agreement a “breakthrough” and noted that the last stages of talks were “extremely difficult.”

Turning to Paulson, Reid said, “Mr. Secretary, we’ve had a lot of pleasant words and some that haven’t always been pleasant.”

Afterwards, turning away from reporters and strolling through the ornate hallways, Reid and Senate Banking Committee Chairman Chris Dodd (D-Conn.) had an emotional exchange, with Dodd putting his hand on Reid’s face and saying, “We did it.”

The White House confirmed that President Bush spoke with Pelosi earlier in the evening to nudge negotiators toward closure.

“We’re pleased with the progress tonight and appreciate the bipartisan effort to stabilize our financial markets and protect our economy,” according to White House spokesman Tony Fratto.

The final product appears to be a genuine compromise stitched together from competing ideas, with House Republicans getting some — but not all — of their insurance-based proposals, which had nearly knocked talks off course, into the deal.

Dodd and Budget Committee Chairman Kent Conrad (D-N.D.) said all major issues among the competing sides in the talks have been resolved.

“This is an agreement in principle, subject to the legislative drafting,” Conrad said. “People have to take it back to their caucuses, and now it’s got to be turned over to the lawyers to be turned into final language.”

Dodd said, “Like any other process, now you want to make sure you see the words on paper that reflect what you believe in.”

Details of the deal include:

• The $700 billion total would be broken into stages, with an immediate $250 billion made available to Wall Street, followed by an additional $100 billion released anytime at the request of the president, followed by a remaining $350 billion made available by Congress.

• Congress could disapprove the last $350 billion, but only through a disapproval resolution that would be subject to a presidential veto. There is no timetable for the remaining $350 billion, meaning that the entire $700 billion could be made available quickly and simultaneously.

• House Republicans’ idea for an insurance pool to protect mortgage-backed securities — expanded to include other troubled assets — and funded by premiums on financial institutions is in the plan, supervised by Treasury officials who will set premiums. The program would be voluntary for companies.

• Taxpayer equity in the companies, intended to let taxpayers recover their investment as the companies recover.

• Executive pay limits intended to prevent “golden parachute” scenarios for the executives of failed companies.

• An oversight board would be established, with seats for the Treasury Department secretary, Securities and Exchange Commission chairman, Commerce Department secretary and Federal Reserve chairman.

• Bankruptcy provisions for which Democrats had fought hard are not in the plan. Known as “cram-downs,” the provisions would have allowed bankruptcy judges authority to revise the terms of mortgages.

The deal is based on a Bush administration proposal that called for using taxpayer funds to buy up high-risk assets from teetering financial institutions in an effort to wall them off from the excessive risk and restore the free flow of credit that keeps the economy running.

Dodd said in the end, negotiators sensed the weight of the moment.

“We realized we had to get to something here,” Dodd said. “There was a common determination recognizing we had to make a decision, either to vote or not to vote. You can’t sit around for nine days, and so that helped tremendously.

“It was really down to a few issues where we agreed something had to be done, but there were some differences on how,” Dodd said.

This report was updated at 2:16 a.m.