Rescue Plan Knocked Off Course

Paulson arrived on Capitol Hill in the evening using a set of principles negotiated by lawmakers earlier in the day as a starting point.

Under that broad agreement, Frank said the Treasury’s proposed authority to buy up to $700 billion in troubled assets from the nation’s financial institutions would be parceled out in installments, starting with $250 billion immediately.

The agreement also would require the Treasury to set limits on executive pay for companies that sell their bad assets to the program. The government could take profit-sharing warrants for all asset purchases.

But House Republicans, including their representative in the talks, Financial Services ranking Republican Spencer Bachus of Alabama, stood back, stressing that there was no deal.

Boehner spokesman Brian Steel said Bachus was not empowered to negotiate on behalf of the Republican caucus. When pressed on why he wasn’t, Steel said Republicans were waiting for bipartisan negotiations.

Another GOP aide said only Boehner could negotiate with Democrats.

Bachus said he got a briefing late Thursday on McCain’s views from several of the candidate’s campaign advisers.

“McCain doesn’t want the $700 billion to go to a few Wall Street firms,” Bachus said.

Several senior Republicans said Bachus had advocated trying to work with Frank to try to revise the administration plan but was overruled by Cantor and other conservatives.

“I think a majority of our caucus supports the working group plan,” Bachus said.

Indeed, several senior House Republicans said they believed only perhaps one in five members of the caucus openly support the administration proposal. They said that at least a third of the caucus was strongly opposed and the rest was either leaning against or undecided.

Democrats are insisting that a large number of Republicans vote for the plan, which is unpopular with a large segment of the public.

“I don’t think you’ll see a plan that passes with only Democratic votes,” Frank said.

Rescue Plan Knocked Off Course

Presidential Politics

The role of the presidential candidates in the process was the subject of heated debate. McCain announced on Wednesday that he was suspending his campaign to return to Washington to work on the deal, and Democratic nominee Barack Obama followed after Bush invited him to the White House for the meeting.

McCain met with House Republicans in Boehner’s office at the end of the noon lunch hour. One of the participants said McCain seemed cool, if not opposed outright, to the administration plan and seemed to have a number of ideas of his own, such as limits on executive compensation and a reduction in the capital gains tax that could form the core of a GOP plan.

Some rank-and-file Republicans said they were investing a lot of hope in McCain’s involvement.

“I’m hoping we wait for John McCain to propose a plan the entire Republican caucus can get behind,” said Rep. Joe Pitts , R-Pa.

But after the White House meeting, Obama said, “When you inject presidential politics into delicate negotiations, it’s not necessarily as helpful as it needs to be.”

Late Thursday, the McCain campaign issued a statement saying that “despite today’s news reports, there never existed a ‘deal,’ but merely a proposal offered by a small, select group of members of Congress. As of right now, there exists only a series of principles, including greater oversight and measures to address CEO pay. However, these principles do not enjoy a consensus in Congress.”

The statement said McCain “did not attack any proposal or endorse any plan” at the White House meeting. “ John McCain simply urged that for any proposal to enjoy the confidence of the American people . . . all sides would have to cooperate and build a bipartisan consensus for a solution that protects taxpayers.”

McCain’s statement then blasted Democrats, saying they “allowed Senator Obama to run their side of the meeting. That did not work as the meeting quickly devolved into a contentious shouting match that did not seek to craft a bipartisan solution.”

Contentious Meeting

Aides to Pelosi said the Cabinet Room meeting was contentious.

“It was a strong exchange of ideas,” said Pelosi spokesman Nadeam Elshami.

Not all of the opposition came from House Republicans.

Rescue Plan Knocked Off Course

Sen. Richard C. Shelby , R-Ala., top GOP member of the Senate Banking Committee, didn’t wait until the end of the session to voice his opinion. He came out long enough to tell reporters that there was “no agreement.”

“There’s still a lot of different opinions,” Shelby added. “Mine is it’s flawed from the beginning.”

The rest of the congressional participants in the meeting returned to Capitol Hill without making statements.

Even if congressional leaders come up with a bipartisan proposal, they are likely to have a tough time selling it to many rank-and-file members, and not only on the Republican side.

House Democrats held a heated caucus meeting Thursday morning in which some of their most liberal members made the case for additional measures in the credit crisis package, including more bankruptcy protection for homeowners facing foreclosure and a stock transaction fee to give the government more revenue to support troubled financial services companies.

Laura Tyson, a former Clinton administration official and senior fellow at the Center for American Progress, argued against the fee idea at the caucus, saying she believed the government could recoup any funds it pays for troubled investments “deal by deal” by negotiating terms for financing rather than charging a fee on each transaction.

Pelosi also rebuffed any such step in the short term, although she said future measures may be needed to cover any losses the government ultimately suffers from the acquisition of troubled assets.

Republican lawmakers made it clear they were under significant pressure from constituents who regard the administration plan as a bailout for risk-taking Wall Street fat cats and an unprecedented government intrusion in the free market.

“I don’t think I’ve gotten one call or e-mail from a constituent supporting this,” said Rep. Roscoe G. Bartlett , R-Md. “I’ve had two calls from businesspeople who say they just want a solution; they’re suffering because of the uncertainty.”

Cantor’s plan was targeted straight at the GOP anxiety.

“The essence of the plan is the recovery should not be funded by taxpayers who’ve been living by the rules, going to work every day, making their contributions to their 401(k)s and college savings plans,” he said. “It should be funded by Wall Street.”

The House Republican plan calls for “removing regulatory and tax barriers that are currently blocking private capital formation” and temporary suspension of dividend payments by financial institutions.

It also proposes requiring participating firms to disclose more information about their mortgage assets to the Treasury, barring government-sponsored enterprises like Fannie Mae and Freddie Mac from securitizing unsound mortgages, having the SEC audit reports of failed companies and review the performance of credit rating agencies, keeping executives from benefiting from taxpayer funding and creating a blue-ribbon panel to make recommendations to Congress on further reforms by Jan. 1, 2009.