Bush, Congressional Leaders Back Financial Rescue, Seek Votes

Sept. 28 (Bloomberg) — President George W. Bush and congressional leaders said they reached an agreement on a $700 billion bank-rescue package designed to revive moribund credit markets.

The House may consider the plan tomorrow and the Senate will vote by Oct. 1, lawmakers said today. While Bush and House Majority Leader Steny Hoyer predicted the measure would pass, Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi suggested they were unsure of the outcome.

“Now we have to get the votes,” Reid said at a press conference on Capitol Hill. “We will have to have bipartisanship to pass it,” Pelosi said.

Lawmakers are trying to steer a path between voter anger at having to foot the bill for the mistakes of Wall Street bankers and the need to shore up a financial system shaken by the collapse of Lehman Brothers Holdings Inc. and Washington Mutual Inc. Bush, in a speech yesterday, said the package was needed to prevent a “deep and painful recession.”

House Republican leaders, who had resisted the Bush administration’s initial proposal because of its cost, urged their colleagues to support the plan in a private meeting today, Representative Mark Kirk of Illinois said in an interview.

While the support of House Republicans leaders boosts the chances the rescue package will pass Congress, it is not assured, some lawmakers said.

“There are a lot of members that are on the line, in between,” said Representative Carolyn Maloney of New York, a Democrat. Reid had said an agreement among lawmakers was needed before global financial markets reopen today.

The plan would give Treasury Secretary Henry Paulson an immediate $250 billion to buy bad loans from financial companies, with the rest to be doled out in stages.

Unclogging Markets

“I am confident this legislation gives us the flexibility to unclog our financial markets,” Paulson said in a statement after congressional leaders released a draft of the bill. The measure will “increase the ability of our financial institutions to deliver the credit that will help create jobs.”

The 110-page bill alters the Bush administration’s original, three-page request for unchecked authority to purchase distressed debt securities from financial companies reeling from the record number of home foreclosures. That plan evoked a blizzard of voter emails and phone calls to members of Congress expression opposition to a bailout.

Oversight Board

The bill establishes an oversight board to monitor the program, and it requires the Treasury to send regular reports to Congress. It also requires Federal agencies that hold mortgages and mortgage-backed securities to minimize foreclosures.

The negotiations were completed about midnight when lawmakers agreed to require the president to offer a plan to recoup any loss to the taxpayers after five years, said a Democratic congressional aide. That clause was intended to address concerns about the cost of the program.

The compromise also includes a proposal by House Republicans, whose objections scuttled an earlier agreement in principle, that provides for government insurance for mortgage- backed securities. The plan also imposes limits on the compensation of executives at participating companies.

“It will be the first time in American history that there will be legislative restrictions on CEO compensation,” said House Financial Services Chairman Barney Frank, Democrat of Massachusetts.

AIG Bailout

Paulson and Federal Reserve Chairman Ben S. Bernanke proposed the plan after the collapse and bankruptcy of Lehman Brothers Holding Inc. and the Federal Reserve’s takeover of American International Group Inc. earlier this month.

The compromise package includes a provision limiting the pay of executives at companies that take advantage of government bailouts, allowing “clawbacks” of money already paid to executives at troubled companies, and forbidding so-called golden parachutes.

To cover losses and administrative costs, and to give taxpayers a chance to recoup some of the governments outlays, Treasury would be required to demand warrants, or options to buy stock at a nominal price.

House Republicans initially balked at the cost of Paulson’s plan. Missouri Representative Roy Blunt, the lead negotiator for the caucus, said his colleagues wanted to “bring both free-market principles and taxpayer protections to the table.”

At one point during negotiations this weekend, billionaire Warren Buffett spoke by telephone to a lawmaker involved in the talks to offer “his best thinking about market reaction to various things,” said Conrad. “People are trying to reach out to the best minds that they know.”

Deficit Grows

White House budget Director Jim Nussle tried to assuage rebellious Republicans tonight, assuring them that the federal deficit won’t increase by $700 billion. The government already projects the deficit at $482 billion in 2009, a record. The deficit in fiscal 2008 is estimated at $389 billion.

“The impact on the taxpayer will be considerably less than $700 billion,” Nussle said in a letter to House Republican Leader John Boehner of Ohio that was released by the White House.

The main reason, he said, is that the government’s purchase of troubled assets has value and, over time, “will produce income and can eventually be sold.” Warrants for stock in distressed companies may later be sold for a profit, Nussle said.

Bush will make statement tomorrow on the financial crisis at 7:35 a.m. Washington time, the White House said.

Presidential candidates Barack Obama and John McCain backed the compromise.

“My inclination is to support it,” Obama, a Democrat, said on CBS’ “Face the Nation.”

Obama said the agreement reflects his core concerns by putting limits on executive compensation, providing congressional oversight and protecting taxpayers.

McCain urged lawmakers to “swallow hard” and support the proposal in an interview today on ABC’s “This Week” program.

“Let’s get this deal done, signed by the president, get moving,” McCain, a Republican, said. “It’s going to restore confidence and get some credit out there, get this economic system moving again, which is basically in gridlock today.”

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