Congressional leaders and the administration of US President George W. Bush reached a tentative deal early yesterday on a landmark bailout of imperiled financial markets whose collapse could plunge the nation into a deep recession.
House Speaker Nancy Pelosi announced the US$700 billion accord just after midnight, but said it still has to be put on paper.
“We’ve still got more to do to finalize it, but I think we’re there,” said Treasury Secretary Henry Paulson, who also participated in the negotiations in the Capitol.
“We worked out everything,” said Senator Judd Gregg, the chief Senate Republican in the talks.
Congressional leaders hope to have the House of Representatives vote on the measure today. A Senate vote would come later.
The plan calls for the Treasury Department to buy deeply distressed mortgage-backed securities and other bad debts held by banks and other investors. The money should help troubled lenders make new loans and keep credit lines open. The government would later try to sell the discounted loan packages at the best possible price.
At the insistence of House Republicans, some money would be devoted to a program that would encourage holders of distressed mortgage-backed securities to keep them and buy government insurance to cover defaults.
The legislation would place “reasonable” limits on severance packages for executives of companies that benefit from the rescue plan, said a senior administration official who was authorized to speak only on background. It would affect fired executives of financial firms and executives of firms that go bankrupt. Some of the provisions would be retroactive and some prospective, the official said.
Also, 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 requires the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers’ monthly payments so they can keep their homes.
The measure’s main elements were proposed a week ago by the Bush administration, with Paulson heading efforts to push it through the Democratic-controlled Congress. Democrats insisted on greater congressional oversight, more taxpayer protections, help for homeowners facing possible foreclosure and restrictions on executives’ compensation.
To some degree, all those items were added.
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