Bailout put in limbo by politics

Democrats said that Republicans are holding up the deal to make John McCain look like a hero.

McClatchy Newspapers

WASHINGTON — Congressional negotiators’ carefully crafted agreement on a $700 billion rescue plan threatened to unravel Thursday as lawmakers at an often tense White House meeting clashed over details.

As Republican presidential nominee John McCain looked on, House Republican Leader John Boehner raised concerns that the plan would be too costly to taxpayers and offered an alternative plan.

Democrats were angry.

“What this looked like to me was a rescue plan for John McCain,” said Senate Banking Committee Chairman Christopher Dodd of the Republican objections.

His reference was to McCain’s eleventh-hour intervention into the negotiations, when he declared he was suspending his campaign and postponing Friday night’s debate with Democrat Barack Obama to help negotiate a bailout plan. Democrats think that Republicans were backing away from a compromise many of them agreed to earlier Thursday — without McCain’s involvement — in order to give McCain time to play a role and perhaps appear as a rescuer.

Senate Majority Leader Harry Reid, D-Nev., said he believed the breakdown was simply an effort to allow McCain to miss tonight’s scheduled debate with Obama.

Rep. Barney Frank, chairman of the House Financial Services Committee, seconded that belief. “I think McCain was hurting politically,” Frank said. “I think this was a campaign ploy.”

When McCain found that an agreement was near, Frank said, it was necessary to upset it so that McCain could later be seen as having played a role. “He’s making it harder to get things done,” Frank said.

Republicans, in contrast, said their reservations on the bailout plan were principled. The plan, they said, had too much government involvement in private industry and too high potential liabilities for taxpayers.

“That agreement is obviously no agreement,” said Sen. Richard Shelby, R-Ala., as he emerged from the White House meeting.

The lawmakers spoke after spending an hour in what was supposed to be a somber show of bipartisan unity at the White House. The session, hosted by President Bush and featuring the two presidential candidates as well as House and Senate leaders, came hours after the Democratic and Republican negotiators had issued a one-page “agreement on principles.”

After the House Republican rebellion at the White House cast doubt on the agreement’s fate, negotiators reconvened Thursday night, hoping once again to find common ground. But they were uncertain how to handle the Republican alternative, whose chief feature would permit the government to provide insurance to firms to buy troubled assets rather than spend taxpayer money on them.

Under the plan, firms would pay insurance premiums to the government in return for coverage.

“We feel it is best to resort to private capital first,” said Rep. Eric Cantor, R-Va., who led the effort, which is backed by Spencer Bachus, R-Ala., the top Republican on the House Financial Services Committee — and who helped negotiate the bipartisan agreement.

Among the main points reached in the bipartisan agreement in principle:

UFunding: Treasury would be authorized to spend $700 billion, but would get only $250 billion immediately, with another $100 billion to be released once the Treasury secretary certifies the money is needed. The other $350 billion could be canceled if Congress passed a joint resolution of disapproval.

UExecutive pay: The Treasury Department would “set standards to prevent excessive or inappropriate executive compensation for participating companies.

UTaxpayer equity: Taxpayers could share in the profits of firms that benefit from the bailout as they return to financial health.

UOversight: The legislation would establish a “strong oversight board with cease and desist authority,” as well as an independent inspector general who would monitor “the use of the Treasury Secretary’s authority.” The Government Accountability Office, Congress’ investigative arm, also would audit the use of bailout funds. Regular detailed reports to Congress on the program would be required.

UHomeowners: The agreement mandates maximum coordinated efforts to modify mortgages for homeowners at risk of foreclosure; requires loan modifications for mortgages owned by the federal government; and directs that a percentage of future profits go to federal housing funds.

UJudicial review: The government would be barred from “acting in an arbitrary or capricious manner or in any way that is inconsistent with existing law,” which ensures the possibility of legal challenges in court. The original administration plan would have prohibited judicial review.