Lawmakers Agree on `Principles’ of Economic Rescue (Update5)

Sept. 25 (Bloomberg) — Congressional negotiators said they reached an agreement in principle on a $700 billion financial- rescue package to inject fresh capital into paralyzed credit markets.

The lawmakers agreed that a plan to let Treasury buy the troubled assets of financial firms should contain provisions strengthening oversight, limiting executive pay and preventing foreclosure, Senate Banking Committee Chairman Christopher Dodd said.

Negotiators made progress on a provision to allow Treasury to acquire equity stakes of participating companies, lawmakers said. Still unresolved is whether the bill will include a provision authorizing bankruptcy judges to change mortgage terms.

“We believe that we’re prepared to act expeditiously on a package” that will “send a message to the markets,” Dodd said after emerging from a negotiating session.

U.S. stocks advanced, led by banks. The Dow Jones Industrial Average rose 250 points as of 3:40 p.m. New York time.

Approval of a measure would address what President George W. Bush warned was a mortgage foreclosures crisis that could cause widespread economic turmoil. In an address to the nation last night, Bush said “without immediate action by Congress, America could slip into a financial panic.”

Passage Predicted

The agreement must still be passed by the House and Senate, and signed into law by the president. Senator Robert Bennett, a Utah Republican, predicted passage.

“I now expect we will indeed have a plan that can pass the House, pass the Senate, be signed by the president and bring a sense of certainty to this crisis that is still roiling in the markets,” Bennett said.

Still, Representative Eric Cantor, a member of the Republican leadership, said most House members of his party don’t back it.

“We have not seen a way to getting majority support” from Republicans, he said.

Bush is hosting a meeting today with congressional leaders, Republican presidential candidate John McCain and his Democratic rival, Barack Obama, to speed the negotiations.

“I’m glad that we’ll be able to go and tell them that there’s not much of a deadlock to break,” said House Financial Services Committee Chairman Barney Frank, who led the talks.

Suspended Campaign

McCain said yesterday he is temporarily suspending his presidential campaign and wants to postpone a scheduled debate with Obama tomorrow, though an agreement on the rescue package might change that.

Under the plan, the Treasury would have $250 billion available immediately, said a Senate aide, who requested anonymity.

Another $100 billion would also be available for the bailout, and the remaining $350 billion could be used unless Congress acts to prohibit it, the aide said.

Frank said a Democratic provision to let judges rewrite mortgage terms for homeowners in bankruptcy proceedings is the “most controversial” and remains an “outstanding issue.”

“We pushed very strongly for it,” Frank said. “We haven’t resolved it yet.”

“Bankruptcy is the one issue where our Republican colleagues told us they thought that would blow up the whole thing,” Frank told reporters. “So it hasn’t been finally resolved, but that’s on the table.”

Taxpayer Protections

Spencer Bachus, the top Republican on the House Financial Services Committee, said inclusion of taxpayer protections is an “important step.”

The executive compensation provision includes elimination of tax deductions for bonuses when a company is participating in the buy-out program, the aide said. Also, executives whose companies sell debt to the government wouldn’t be allowed to take “golden parachute” severance packages and bonuses would have to be returned if they were based on financial targets that weren’t met, the aide said.

The government would also obtain an equity stake in all but the smallest companies that sell debt, the aide said.

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