Bailout Advances, Support Not Guaranteed

WASHINGTON - Congressional leaders and Bush administration officials appeared to move closer to a tentative agreement on the Treasury Department's proposed $700 billion bailout late yesterday. However, some Republicans made it clear they remained opposed to it and it was unclear if supporters would be able to get enough GOP support for the pact to push it through Congress.

Senate Banking chairman Christopher Dodd, D-Conn., and House Financial Services chairman Barney Frank, D-Mass., told reporters in the afternoon that they had hammered out a tentative bipartisan compromise after a three-hour meeting with top Democrats and Republicans in the U.S. Capitol.

Dodd said lawmakers were willing to "act expeditiously" to vote on the proposal, and Sen. Bob Bennett, R-Utah, who participated in the negotiations, predicted it would clear both houses of Congress.

Though lawmakers declined to discuss specifics until their staffs had drafted legislation and met with Treasury officials, a draft of the "agreement in principle" obtained by The Bond Buyer would authorize Treasury's request for $700 billion, with $250 billion available immediately and an additional $100 billion as needed. The final $350 billion would be subject to a congressional joint resolution of disapproval, meaning it will be authorized automatically unless Congress acts to stop it.

During a White House meeting with lawmakers, including Republican and Democratic presidential candidates Sen. John McCain of Arizona and Sen. Barack Obama of Illinois, President Bush said he hoped a deal could be reached "very shortly," warning of a "serious economic crisis" if Congress fails to act.

The agreement would include provisions that aim to boost taxpayer protection, oversight, and transparency and home ownership preservation.

Among the taxpayer protections in the agreement, which Rep. Spencer Bachus, R-Ala., and Sen. Jack Reed, D-R.I., helped to write, the Treasury secretary would be able to set standards to prevent excessive or inappropriate executive compensation for participating companies, as well as a provision that would require that any transaction include equity sharing.

Meanwhile, the agreement would establish a "strong" oversight board with "cease and desist authority" and would establish an independent inspector general to monitor the use of the Treasury secretary's authority.

Speaking on the cable network CNBC yesterday afternoon, Frank said that House and Senate leaders were unable to come to terms on only one issue, the inclusion of a provision that would allow a judge to alter the terms of a mortgage during bankruptcy proceedings.

As The Bond Buyer went to press, some notable Republicans remained opposed to the program, including Sen. Richard Shelby of Alabama, the ranking minority member on the Senate Banking committee. In an interview with CNBC, Shelby said that had doubts about what he called the "Paulson process" of rushing to approve a massive bailout, as well as the efficacy of the "reverse auctions" that the Federal Reserve plans to use to price the securities it purchases from financial firms. He also said he did not believe foreign financial entities or their U.S.-based subsidiaries should be included in the bailouts.

In a statement, Shelby said: "I do not believe this is the right approach. We did not get into this situation in a matter of days and we are not going to fix it in a matter of days."

Shelby and the Republican Study Group, led by Rep. Jeb Hensarling of Texas, put forth their own set of proposals that would address liquidity issues by increasing the resources of the Federal Reserve System and the Treasury.

"By enhancing the Federal government's existing lending facilities and guarantee programs, we can help stabilize money market funds and provide loans to troubled financial institutions without exposing taxpayers to massive loans," Shelby said.

Hensarling's Republican Study Group went further by arguing that the Congress temporarily lift capital gains taxes as well as setup an insurance system paid for by the holders of troubled mortgage-backed securities that cover the MBS not already insured by the federal government.

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