Senator Christopher J. Dodd, chairman of the Senate banking committee, center, with Harry Reid, the Senate majority leader, heading to a press conference in Washington on Friday.
Bailout Talks to Resume After Impasse
WASHINGTON — President Bush and two Democratic leaders in the Senate tried to assure Americans on Friday morning that lawmakers and the administration would be able to come together and reach an agreement on a proposal to rescue the country’s financial system.
“We are going to get a package passed,” Mr. Bush said, a day after an earlier agreement dissolved amid a flurry of political rancor. “We will rise to the occasion. Republicans and Democrats will come together and pass a substantial rescue plan.”
A short time later, the Senate majority leader, Harry Reid of Nevada, made similar assurances. “We’re going to get this done and stay in session for as long as it takes to get it done,” Mr. Reid said.
The pledges came as lawmakers and administration officials were gearing up for a second day of discussions about the shape of the $700 billion rescue package. Thursday’s agreement, which seemed like a sure thing by early afternoon, fell apart during a meeting later in the day at the White House after House Republicans rejected the proposal brokered by the Treasury secretary Henry M. Paulson Jr.
Speaking from the White House, President Bush noted the disagreements among lawmakers about how the rescue should be shaped. “There are disagreements over aspects of the plan,” Mr. Bush said, “but there is no disagreement that something substantial must be done,” he said.
While noting that progress had been made in reaching an agreement, Mr. Reid, standing next to Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Senate banking committee, criticized House Republicans as well as the Republican presidential candidate, John McCain, who suspended his campaign amid promises to come to Washington and help hammer out a deal.
“All he has done is stand in front of the cameras,” Mr. Reid said of Mr. McCain. “We still don’t know where he stands on the issues.”
“The insertion of presidential politics has not been helpful,” Mr. Reid said.
Earlier Friday morning, lawmakers from both parties staked out their positions on a round of morning television talk shows. Ahead of the anticipated resumption of negotiations later in the morning, the House speaker, Nancy Pelosi, said the urgency of the moment meant that agreement would come within the next 24 hours.
“It will happen because it has to happen,” she said in an interview on ABC’s “Good Morning America,” according to Reuters.
Separately, Representative Barney Frank, Democrat of Massachusetts, and the chairman of the House Financial Services Committee, said on Friday that an agreement depended on House Republicans’ ending their opposition and “dropping this revolt” against the plan proposed by the Bush administration, The Associated Press reported. He described the rival plan being proposed by Republicans as “an ambush.”
Meanwhile, Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee and a critic of the current plan, said the plan had to change before it would win support of Republicans.
In an interview on CNBC, quoted by Reuters, Mr. Shelby said, “This is not going to work.”
Thursday had begun with an agreement that Washington hoped would end the financial crisis that has gripped the nation. But it dissolved into a verbal brawl in the Cabinet Room of the White House, urgent warnings from the president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support.
“If money isn’t loosened up, this sucker could go down,” President Bush declared as he watched the $700 billion bailout package fall apart before his eyes, according to one person in the room.
It was an implosion that spilled out from behind closed doors into public view in a way rarely seen in Washington.
By 10:30 p.m., after another round of talks, Congressional negotiators gave up for the night and said they would try again on Friday. Left uncertain was the fate of the bailout, which the White House says is urgently needed to fix broken financial and credit markets, as well as whether the first presidential debate would go forward as planned Friday night in Mississippi.
On Thursday afternoon, when Congressional leaders and Senators John McCain and Barack Obama, the two major party presidential candidates, trooped to the White House, most signs pointed toward a bipartisan agreement on a grand compromise that could be accepted by all sides and signed into law by the weekend. It was intended to pump billions of dollars into the financial system, restoring liquidity and keeping credit flowing to businesses and consumers.
“We’re in a serious economic crisis,” Mr. Bush told reporters as the meeting began shortly before 4 p.m. in the Cabinet Room, adding, “My hope is we can reach an agreement very shortly.”
But once the doors closed, the House Republican leader, John A. Boehner of Ohio, surprised many in the room by declaring that his caucus could not support the plan to allow the government to buy distressed mortgage assets from ailing financial companies.
Mr. Boehner pressed an alternative that involved a smaller role for the government, and Mr. McCain, whose support of the deal is critical if fellow Republicans are to sign on, declined to take a stand.
The talks broke up in angry recriminations, according to accounts provided by a participant and others who were briefed on the session, and were followed by dueling news conferences and interviews rife with partisan finger-pointing.
In the Roosevelt Room after the session, the Treasury secretary, Henry M. Paulson Jr., literally bent down on one knee as he pleaded with Ms. Pelosi not to “blow it up” by withdrawing her party’s support for the package over what Ms. Pelosi derided as a Republican betrayal.
“I didn’t know you were Catholic,” Ms. Pelosi said, a wry reference to Mr. Paulson’s kneeling, according to someone who observed the exchange. She went on: “It’s not me blowing this up, it’s the Republicans.”
Mr. Paulson sighed. “I know. I know.”
It was the very outcome the White House had said it intended to avoid, with partisan presidential politics appearing to trample what had been exceedingly delicate Congressional negotiations.
Mr. Dodd denounced the session as “a rescue plan for John McCain,” and proclaimed it a waste of precious hours that could have been spent negotiating.
But a top aide to Mr. Boehner said it was Democrats who had done the political posturing. The aide, Kevin Smith, said Republicans revolted, in part, because they were chafing at what they saw as an attempt by Democrats to jam through an agreement on the bailout early Thursday and deny Mr. McCain an opportunity to participate in the agreement.
The day seemed to hold promise as it began. On Wednesday night, Mr. Bush had delivered a prime-time televised address to the nation, warning that “our country could experience a long and painful recession” if lawmakers did not act quickly to pass a huge Wall Street bailout plan.
After spending Thursday morning behind closed doors, senior lawmakers from both parties emerged shortly before 1 p.m. in the ornate painted corridors on the first floor of the Capitol to herald their agreement on the broad outlines of a deal.
They said the legislation, which would authorize unprecedented government intervention to buy distressed debt from private firms, would include limits on pay packages for executives of some firms that seek assistance and a mechanism for the government to take an equity stake in some of the firms, so taxpayers have a chance to profit if the bailout plan works.
But a few blocks away, a senior House Republican lawmaker was at a luncheon with reporters, saying his caucus would never go along with the deal. This Republican said Representative Eric Cantor of Virginia, the chief deputy whip, was circulating an alternative course that would rely on government-backed insurance, not taxpayer-financed purchase of mortgage assets.
He said the recalcitrant Republicans were calculating that Ms. Pelosi, Democrat of California, would not want to leave her caucus politically exposed in an election season by passing a bailout bill without rank-and-file Republican support.
“You can have all the meetings you want,” this Republican said, referring to the White House session with Mr. Bush, the presidential candidates and Congressional leaders, still hours away. “It comes to the floor and the votes aren’t there. It won’t pass.”
House Republicans have spent days expressing their unease about a huge government intervention, which they regard as a step down the path to socialism.
Mr. Smith, the aide to Mr. Boehner, said the leader had directed a group of Republicans a few days ago to see whether they could come up with alternatives that relied less on tax funds in providing the rescue package; that led to Mr. Cantor’s mortgage-insurance approach. He said Mr. Boehner thought Mr. Cantor’s idea should be taken into consideration in the talks.
The House Republicans’ revolt shocked Democrats; Mr. Reid said later that he was under the impression that Mr. Boehner had been a strong advocate for moving forward with the Paulson plan.
Mr. Frank, the Massachusetts Democrat, who attended the White House meeting, was shocked as well. “We were ready to make a deal,” Mr. Frank said later.
Ms. Pelosi told reporters that she was open to considering ideas proposed by the House Republicans. And Mr. McCain and Mr. Obama both said they held out hope that a deal could be reached soon.
At the White House, Mr. Bush was holding fast to the approach that Mr. Paulson has championed.
“In case there’s any confusion,” Mr. Fratto, the deputy press secretary, wrote in an e-mail message. “The president supports the core of Secretary Paulson’s plan.”
This article was reported by David M. Herszenhorn, Carl Hulse and Sheryl Gay Stolberg and written by Ms. Stolberg. Graham Bowley and Sharon Otterman contributed reporting from New York, and Elisabeth Bumiller from Washington.
Posted at 11:28 AM ET, 09/26/2008
McCain Blinks
The news that John McCain will debate Barack Obama tonight in Mississippi is a concession by the Arizona Senator that his attempt to score a quick political victory on legislation to bail out the financial sector did not pan out as he had hoped.
McCain suspended his presidential campaign with much fanfare on Wednesday, insisting that the crisis in financial markets and the seeming stalemate on Capitol Hill required that politics be set aside for the good of the country.
But, over the intervening 24 hours, McCain saw what looked at first like a brilliant political gambit turn into a nightmare as what looked like a done deal to save the financial industry devolved into a partisan shouting match at the White House that left Congressional negotiators back at square one.
Seeking to put the best possible face on the situation, the McCain campaign released a statement -- the full text of which is available after the jump -- that read in part:
"Senator McCain has spent the morning talking to members of the Administration, members of the Senate, and members of the House. He is optimistic that there has been significant progress toward a bipartisan agreement now that there is a framework for all parties to be represented in negotiations...The McCain campaign is resuming all activities and the Senator will travel to the debate this afternoon. Following the debate, he will return to Washington to ensure that all voices and interests are represented in the final agreement, especially those of taxpayers and homeowners."
The statement also sought to cast the breakdown of negotiations on the bill as a "familiar spectacle" in Washington where the needs of regular Americans were sacrificed at the altar of partisanship. McCain's campaign also accused Obama of "political posturing" rather than the post-partisan approach that the Illinois Senator has put at the heart of his presidential campaign.
Spin aside, McCain blinked in what had become a high stakes staring contest between he and Obama.
In the immediate aftermath of McCain's campaign suspension and call for the postponement of tonight's debate in Mississippi, Obama held an impromptu press conference in which he insisted he would still attend the debate and took a not-so-subtle shot at McCain by arguing that presidents must be able to multi-task.
As yesterday wore on and the prospects of a deal being announced became more remote, Obama and his campaign stood firm on their original plan to fly to Mississippi today to make final preparations for the debate.
With the likelihood of a full deal emerging any time before tonight, the McCain campaign and its surrogates began hedging his promise to stay in Washington until a compromise was reached.
"What's more important than anything, that when we go to Mississippi tonight, both candidates can say that the Congress is working, back in business, that we have an outline or proposal that will protect the taxpayer and save the country from financial Pearl Harbor, as Warren Buffett called it," South Carolina Sen. Lindsey Graham, a key McCain surrogate, said during an interview on The Today Show this morning.
That statement, and McCain's subsequent decision to go to the debate is his campaign's attempt to make lemonade out of lemons.
Expect McCain to draw heavily on his experiences over the last few days in tonight's debate, casting himself as someone willing to put aside partisanship for the good of the country and Obama as nothing more than a partisan warrior.
Make no mistake: It's been a very difficult last 72 hours for McCain's campaign. But, if he can overperform expectations in tonight's debate all of the sturm und drang of the last three days will likely be forgotten overnight.
The stakes simply couldn't be any higher.
Where Are the Grown-Ups?
Many people on both the right and the left are outraged at the idea of using taxpayer money to bail out America’s financial system. They’re right to be outraged, but doing nothing isn’t a serious option. Right now, players throughout the system are refusing to lend and hoarding cash — and this collapse of credit reminds many economists of the run on the banks that brought on the Great Depression.
It’s true that we don’t know for sure that the parallel is a fair one. Maybe we can let Wall Street implode and Main Street would escape largely unscathed. But that’s not a chance we want to take.
So the grown-up thing is to do something to rescue the financial system. The big question is, are there any grown-ups around — and will they be able to take charge?
Earlier this week, Henry Paulson, the Treasury secretary, tried to convince Congress that he was the grown-up in the room, come to protect us from danger. And he demanded total authority over the rescue: $700 billion to be used at his discretion, with immunity for future review.
Congress balked. No government official should be entrusted with that kind of monarchical privilege, least of all an official belonging to the administration that misled America into war. Furthermore, Mr. Paulson’s track record is anything but reassuring: he was way behind the curve in appreciating the depth of the nation’s financial woes, and it’s partly his fault that we’ve reached the current moment of meltdown.
Besides, Mr. Paulson never offered a convincing explanation of how his plan was supposed to work — and the judgment of many economists was, in fact, that it wouldn’t work unless it amounted to a huge welfare program for the financial industry.
But if Mr. Paulson isn’t the grown-up we need, are Congressional leaders ready and able to fill the role?
Well, the bipartisan “agreement on principles” released on Thursday looks a lot better than the original Paulson plan. In fact, it puts Mr. Paulson himself under much-needed adult supervision, calling for an oversight board “with cease and desist authority.” It also limits Mr. Paulson’s allowance: he only (only!) gets to use $250 billion right away.
Meanwhile, the agreement calls for limits on executive pay at firms that get federal money. Most important, it “requires that any transaction include equity sharing.”
Why is that so important? The fundamental problem with our financial system is that the fallout from the housing bust has left financial institutions with too little capital. When he finally deigned to offer an explanation of his plan, Mr. Paulson argued that he could solve this problem through “price discovery” — that once taxpayer funds had created a market for mortgage-related toxic waste, everyone would realize that the toxic waste is actually worth much more than it currently sells for, solving the capital problem. Never say never, I guess — but you don’t want to bet $700 billion on wishful thinking.
The odds are, instead, that the U.S. government will end up having to do what governments always do in financial crises: use taxpayers’ money to pump capital into the financial system. Under the original Paulson plan, the Treasury would probably have done this by buying toxic waste for much more than it was worth — and gotten nothing in return. What taxpayers should get is what people who provide capital are entitled to: a share in ownership. And that’s what the equity sharing is about.
The Congressional plan, then, looks a lot better — a lot more adult — than the Paulson plan did. That said, it’s very short on detail, and the details are crucial. What prices will taxpayers pay to take over some of that toxic waste? How much equity will they get in return? Those numbers will make all the difference.
And in any case, it seems that we don’t have a deal.
This has to be a bipartisan plan, and not just at the leadership level. Democrats won’t pass the plan without votes from rank-and-file Republicans — and as of Thursday night, those rank-and-file Republicans were balking.
Furthermore, one non-rank-and-file Republican, Senator John McCain, is apparently playing spoiler. Earlier this week, while refusing to say whether he supported the Paulson plan, he claimed not to have had a chance to read it; the plan is all of three pages long. Then he inserted himself into the delicate negotiations over the Congressional plan, insisting on a White House meeting at which he reportedly said little — but during which consensus collapsed.
The bottom line, then, is that there do seem to be some adults in Congress, ready to do something to help us get through this crisis. But the adults are not yet in charge.
McCain's Bizarre Behavior
The Daily Dish by Andrew Sullivan, The Atlantic26 Sep 2008 09:37 am
How on earth does one make sense of it? The last week, he has plunged from one gimmick to another, finally landing on this transparently cynical bid to "suspend" his campaign until a bailout deal - then returning to Washington to actually say nothing while the deal collapsed:
At the bipartisan White House meeting that Mr. McCain had called for a day earlier, he sat silently for more than 40 minutes, more observer than leader, and then offered only a vague sense of where he stood, said people in the meeting.
In rode the man on the white horse, whom no one really needed. And when he got there, he didn't resolve the impasse, and he didn't propose a plan. He just sat there, er, blinking. Now he's tied himself into the comic position that if this deal isn't made by tonight, he won't show up at the debate, so there.
It's like a seventeen year old going to their room and slamming the door when he can't be the center of attention. Matt Cooper notes:
McCain certainly hasn't helped and now we're at a point where a deal seems unlikely tomorrow in time for the debate which means McCain will have to make another decision--whether to swallow his pride and show up for the Meeting in Mississippi or be the biggest no-show in the history of American politics. Since he doesn't seem to have added anything to the negotiations in Washington, it's hard to see why on earth he should show up for the debate with Barack Obama.
If he shows up with no deal, he'll look beyond lame. If he shows up after the deal, he will not be able to say truthfully he had anything to do with it, especially if he now leads opposition to the bailout. All in all: it's very hard to know what is going on in his head, what stunt he's going to pull next, what new drama he wants to unveil. Calming, isn't it, to think what a McCain presidency would look like. Not boring, anyway.
How Much is $700 Billion Really Worth?
The dollar amount of Treasury Secretary Hank Paulson’s government bailout plan has been hammered into all our brains by now: 700 billion. But lest we lose sight of how much that actually is, VF.com (Vanity Fair) compiles its own list of other things the lump sum could have been spent on.
• Things that would be useful:
-Preventing 200 million foreclosures
-Paying back our debt to Japan, with enough left over for Luxembourg or Russia
-Paying the equivalent of 10 years of total international humanitarian aid at current levels, per Jeff Sachs's estimate
-Tripling the income of the billion people in the world who are living on $1/day or less
-Providing bi-weekly $100 psychotherapy sessions for every American for a year
• Things that would be a wee bit Socialist:
-Paying for Social Security for next 40 years
-Providing healthcare for all Americans
-Buying Apple, Google, Microsoft and Berkshire Hathaway
• Things that would be awesome:
-Throwing 100,000 lavish Las Vegas birthday parties with appearances by the Rolling Stones
-Buying Iraq and Afghanistan, with enough left over for Sweden (or 13 Iraqs, or 90 Afghanistans), measuring by G.D.P.
-Remaking The Dark Knight 3,800 times
-Buying 10,000 pounds of LSD, the most expensive thing in the world, per pound
• Things that would arguably be a waste of money:
-Paying for enough ads for the next 4,000 Super Bowls (with ads at $3 million)
-Buying 10 iPhones for every American (with iPhones at $200)
-Fighting for another 5 years in Iraq and Afghanistan at current costs
-Buying every Mega Millions ticket at current circulation for next 180 years
-Shipping five roses to everybody on the planet
-Buying the publishing and music industries wholesale
-Remaking Titanic 3,500 times
• Things that may come in handy when society collapses:
-Supplying at least two AK-47’s per person, including children (at about $1,000 a pop on the black market)
-Feeding every American on a Campbell’s soup diet for 2 years (at $1.29 a can)
-Buying 10 high-end tents for every American
-Providing a Tata—the miraculous, $2,500 Indian minicar—for every American of driving age
• Things that would quite possibly suck the Earth into black holes:
-10 Large Hadron Colliders
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