Bailout consensus remains elusive

WASHINGTON – Prospects for quick congressional action on the nation’s worsening financial crisis dimmed Friday, with House Republicans continuing to balk, some House Democrats making new demands of their own and legislative strategists suggesting action might not come until Wednesday

House Republicans, whose objections derailed the weeklong talks over President Bush’s original $700 billion bailout plan, insisted they wanted an agreement and understood the urgency of the situation.

“We’re going into these negotiations with every intention of having a real negotiation, of having a bill that House Republicans can vote for and solving this problem as quickly as we can,” House Minority Whip Roy Blunt, R-Mo., the newly designated negotiator for House Republicans, said Friday.

But there were no meetings above the staff level, and it was not clear what specific changes House Republicans wanted to see in the plan spearheaded by Treasury Secretary Henry M. Paulson Jr.

Blunt’s statement said only that the final rescue plan should include “some additional free enterprise principles.”

Stocks posted modest gains Friday, but the continuing frailty of the financial system was demonstrated by the government-brokered seizure and sale late Thursday of Washington Mutual Bank, the biggest U.S. bank failure in history. It was just the latest in a series of collapses of powerhouse financial outfits, including Wall Street investment bank Lehman Bros. and insurance giant AIG.

Citing the precarious financial markets, House Speaker Nancy Pelosi, D-Calif., sought to keep the pressure on Congress by ordering a rare weekend session.

“We will not leave until legislation is passed that will be signed by the president,” Pelosi said. “The markets need a message from us that we’re acting.”

Administration and congressional officials have set late Sunday as a deadline, worried that the volatile financial markets will go into full panic if there is no deal before trading resumes next week.

But with no clear consensus on a deal emerging, and with the Jewish holiday of Rosh Hashanah falling on Tuesday, some Capitol Hill aides speculated that a final deal might not come to a vote before Wednesday.

The negotiations over the rescue plan were clouded Thursday by the emergence of a Republican-backed proposal for a government-organized insurance program to be paid for by Wall Street. Proponents, who also called for further deregulation and more tax breaks for business, said their approach would not require billions of dollars in taxpayers’ funds.

House Minority Leader John Boehner, R-Ohio, spoke favorably of the insurance plan Thursday, although on Friday he appeared to back away from it, saying, “There are a lot of options.”

The apparent contradiction triggered speculation that the current impasse reflected politics more than policy.

“The Republicans want to drag their feet and get some changes so they can say the bill looks better for taxpayers,” said Greg Valliere, an independent political strategist for the financial services enterprise Stanford Group Co. “The key political issue is this: Who wants to take ownership of this thing?”

But with e-mails and calls to Congress running overwhelmingly against the deal, House Republicans said they were working to make sure that ordinary Americans would not be fleeced.

“We believe that America is on the edge of an economic crisis and we believe that we need to act and need to act quickly,” Boehner said. But, he added, “We will not agree to a bill that sells taxpayers out.”

The insurance plan has been touted by Republicans as a way to protect taxpayers, although experts were divided over whether it would work.

The lead author, Rep. Eric Cantor, R-Va., said in an interview that the plan still would require the government to spend tax dollars to buy up the toxic mortgage-related securities that are at the heart of the crisis.

Paulson said such insurance might help prevent future panics but would not address the current problem. In his initial proposal a week ago, Paulson asked for authority to buy as much as $700 billion of Wall Street’s toxic mortgage-related securities.

By removing those assets from the ledgers of banks and other financial institutions, establishing some sort of price for the troubled securities, and pumping cash into the panicky system, the administration said its plan would loosen credit and spur a resumption of normal financial activity.

Negotiations over the plan went forward all last week, and Paulson had accepted an array of modifications designed to assure outside oversight of the program, protect taxpayers, cap compensation for executives whose companies participated, and dole out the money in three stages instead of all at once.

Stocks initially sank on news that the rescue plan was stalled, but began to recover after Bush predicted a plan would be enacted. The Dow Jones industrial average ended the day with a gain of 121.07 points, to 11,143.13.

But it was clear that Bush, who was host of a contentious and inconclusive meeting at the White House on Thursday, had little influence over members of his own party and hence, over the shape of the emerging deal.

Democrats were quick to try to capitalize on the GOP’s divisions. “President Bush, for the sake of America, please get your party in line,” Sen. Charles Schumer, D-N.Y., said in a speech on the Senate floor. “Get the House Republicans to be more constructive.”

As the delay continued, however, some Democrats began to express reservations of their own.