Bank-Rescue Plan Is Under Review by U.S. Lawmakers

Bank-Rescue Plan Is Under Review by U.S. Lawmakers

Sept. 28 (Bloomberg) -- U.S. lawmakers are reviewing a tentative agreement to revive credit markets by authorizing a $700 billion plan to buy troubled assets from financial institutions.

``The deal is done,'' Senator Judd Gregg, a New Hampshire Republican, a ranking member of the Budget Committee, said this morning. The House and Senate may vote tomorrow, Gregg said.

Republican House members want to see the compromise proposal written into legislation before making a final decision to support it, said Representative Eric Cantor of Virginia.

``We're waiting to see what this looks like on paper to see if we have an agreement,'' Cantor said.

Some House lawmakers of both parties expressed doubts about the plan. ``It does not do what the American people are asking us to do, which is to protect their taxpayer dollars,'' said Republican Representative Darrell Issa of California.

Representative Marcy Kaptur, an Ohio Democrat, said the measure is being pushed by the same people ``who are responsible for this implosion on Wall Street.''

The negotiations were completed about midnight when lawmakers agreed to require the president to offer a plan to recoup any loss to the taxpayers after five years, said a Democratic congressional aide. That clause was intended to address concerns about the cost of the program.

The agreement alters the Bush administration's original request for unchecked authority to purchase distressed debt securities from financial companies reeling from the record number of home foreclosures. That plan evoked a blizzard of emails and phone calls from voters outraged at being asked to foot the bill for the mistakes of Wall Street investors.

Initial Cost

During weeklong negotiations, lawmakers reduced the initial cost by half to $350 billion, with the remainder to be authorized later, and they added provisions creating an oversight structure and help to homeowners facing foreclosure.

The compromise also includes a proposal by House Republicans, whose objections scuttled an earlier agreement in principle, that provides for government insurance for mortgage- backed securities. The plan also imposes limits on the compensation of executives at participating companies.

``It will be the first time in American history that there will be legislative restrictions on CEO compensation,'' said House Financial Services Chairman Barney Frank, Democrat of Massachusetts.

Asian Markets

Lawmakers want to announce a firm agreement before the Japanese stock market opens at 8 p.m. Washington time. The deadline reflects concern that markets will be further rocked by lack of an agreement after the Standard & Poor's 500 index recorded its largest weekly drop since May.

Treasury Secretary Paulson last night said the proposed deal ``will work and be effective.'' More work needs to be done, ``but I think we're there,'' he said.

Paulson and Federal Reserve Chairman Ben S. Bernanke proposed the plan after the collapse and bankruptcy of Lehman Brothers Holding Inc. and the Federal Reserve's takeover of American International Group Inc. earlier this month. They said it was needed to revive lending and restore the flow of credit to the U.S. economy.

President George W. Bush warned yesterday that legislative action was needed to avoid a ``deep and painful recession.''

Bush spokesman Tony Fratto said early this morning that administration officials are ``pleased with the progress tonight and appreciate the bipartisan effort to stabilize our financial markets and protect our economy.'' He said Bush had spoken last night with House Speaker Nancy Pelosi on the negotiations.

President's Request

The proposal immediately provides $250 billion, and another $100 billion could be used at the request of the president. Congress would have to review the expenditure of the remaining $350 billion, according to an outline distributed to reporters.

The package includes a provision aimed at ``preventing golden parachutes'' for executives of companies who leave firms that have sold troubled assets to the government, said Senator Kent Conrad, a North Dakota Democrat.

Companies that sell debt to the government will issue stock warrants to the government so that taxpayers ``can gain as companies recover'' from economic difficulties, Conrad said.

House Republicans initially balked at the cost of Paulson's plan. Missouri Representative Roy Blunt, the lead negotiator for House Republicans, said his colleagues wanted to ``bring both free-market principles and taxpayer protections to the table.''

``I think we will be able to have an announcement'' later today, Blunt said.

Shareholder Votes

Republican leadership aides said that provisions favored by unions that own significant stakes in companies through pension plans were dropped. That includes a requirement for shareholder votes on executive-compensation issues.

At one point during the negotiations, billionaire Warren Buffett spoke by telephone to a lawmaker involved in the talks to offer ``his best thinking about market reaction to various things,'' said Conrad. ``People are trying to reach out to the best minds that they know.''

Presidential candidates Barack Obama and John McCain backed the compromise.

``My inclination is to support it,'' Obama, a Democrat, said on CBS' ``Face the Nation.''

Obama said the agreement reflects his core concerns by putting limits on executive compensation, providing congressional oversight and protecting taxpayers.

McCain urged lawmakers to ``swallow hard'' and support the proposal in an interview today on ABC's ``This Week'' program.

``Let's get this deal done, signed by the president, get moving,'' McCain, a Republican, said. ``It's going to restore confidence and get some credit out there, get this economic system moving again, which is basically in gridlock today.''

BLOOMBERG