Bailout Negotiations Enter Evening Session

WASHINGTON -- The idea of charging large financial firms fees to set up an industry-funded rescue insurance fund was gaining momentum as key House and Senate negotiators continued to meet Saturday evening to iron out the final details of a $700 billion rescue package for Wall Street.

Lawmakers and staff reconvened their meeting around 7:30 p.m. EDT in the offices of House Speaker Nancy Pelosi (D., Calif.), hopeful they could broker a deal on the much anticipated but exceedingly difficult-to-negotiate legislation that would have the federal government buy up billions of dollars of soured assets.

Associated Press

Sen. Charles Schumer, left, Sen. Max Baucus and Sen. Jack Reed take a short break during ongoing negotiations on Capitol Hill Saturday.

The mood was said to be "optimistic" entering the evening talks, according to a Senate aide familiar with the talks, after policymakers -- including Treasury Secretary Henry Paulson -- made progress during an afternoon negotiating session. Staff predicted a long night of negotiations, however, an observation backed up by the delivery of food from sandwich shop Cosi to Ms. Pelosi's office just before 8 p.m. EDT.

Congressional negotiators have been consulting with outside experts including billionaire investor Warren Buffett amid a focus on market reaction to the plan.

"We've had Warren Buffett on the phone tonight, other experts that we've been consulting," Sen. Kent Conrad (D., N.D.) told reporters as he walked through the U.S. Capitol. He declined to identify other people with whom lawmakers have consulted.

Senate Majority Leader Harry Reid (D., Nev.), in an appearance on the Senate floor earlier Saturday, said there are only a "handful of issues still lingering" for lawmakers to finalize. He said his goal was for the Congress and the Bush administration to at the very least release an outline of the bailout plan before Asian markets open Sunday evening.

The Senate aide said a number of specific ideas appeared to be gaining traction Saturday evening, most notably the concept of creating a "financial stability" fund financed by Wall Street and styled in the mold of the deposit insurance program run by the Federal Deposit Insurance Corp. Lawmakers had considered levying a tax on some securities transactions to help offset the cost of the $700 billion rescue plan, but the idea of assessing fees on a wide swath of financial firms to help pay for current and future government bailouts had its proponents.

The aide said specific language was still being worked out, but that negotiators were deliberating whether to assess the fees on all types of financial firms -- including possibly hedge funds and other nontraditional institutions -- and whether to put the fund in place now or in the future depending on the eventual cost to taxpayers from the current rescue plan. The fees and the fund would likely only apply to larger firms over a certain asset size.

A draft of the financial stability fund language suggest it would apply to financial firms, "the failure of which would result in direct pecuniary losses to the Federal Government, due to reliance upon Federal loans, advances, or other provisions of financial instruments or securities."

Associated Press

Senate Republican Leader Mitch McConnell and Sen. Judd Gregg speak on the financial crisis Saturday.

Also gaining steam was a proposal to eliminate the tax deductions for companies on executive compensation for top officers that is above $400,000. Eliminating so-called "golden parachutes" and excessive executive pay-outs for firms that sell toxic assets to the government has been a key issue for lawmakers on both sides of the aisle in their deliberations with the Treasury Department.

Lawmakers were also said to be making headway on their insistence that the government receive mandatory warrants in firms that sell directly or auction their bad assets to the government.

"We're just shopping language right now and it's going back to have some lawyers look at the latest offer," said Mr. Conrad (D., N.D.), the chair of the Senate Budget Committee, as he was heading back into the evening session.

One issue still to be resolved was how the $700 billion authority to Treasury to buy up toxic assets will be meted out.

Lawmakers want Treasury to receive the authority in tranches, receiving $250 billion immediately and another $100 billion if needed as certified by the president. The remaining $350 billion would be subject to a Congressional vote, giving lawmakers the opportunity to vote to rescind the funds.

But a Senate aide familiar with the discussions said Treasury is pushing for a larger initial authority, likely around $500 billion.

Lawmakers appeared to have the advantage on the issue ahead of the evening talks, the Senate aide said, though no part of the deal had been completely finalized.

Congressional and Treasury staff members have been trying to resolve the various issues related to the Wall Street bailout plan all week, and staff discussions lasted all day Friday and extended into the wee hours of Saturday morning to no avail.

Rep. Roy Blunt (R., Mo.), one of the negotiators, said that progress was being made but he wouldn't discuss specifics.

The bailout negotiations took a step forward Friday, when Senate Democrats agreed to include an insurance-based scheme as an option as part of the Wall Street bailout package in a bid to win support of House Republicans, who have been the main obstacle to reaching an agreement.

Sen. Charles Schumer (D., N.Y.) said that while Democrats would allow the insurance idea to be included, he didn't think that any financial firms would choose to take part in such a scheme. "I offered on behalf of Sens. (Christopher) Dodd and Reid that we would put their proposal in as an option," said Mr. Schumer. "No one would have to use it, but it would be there as an option."

According to lawmakers on both sides of the aisle, the plan proposed by Mr. Paulson, which would see the federal government buy up to $700 billion in toxic mortgage-linked assets, will form the core of any solution.

Sen. Judd Gregg (R., N.H.), one of the lawmakers taking part in the talks to thrash out an agreement, said Saturday morning that the negotiators would stay in the meeting until an agreement is reached. "The basic understanding is once we get into that room we are going to stay there until we have an agreement," he said.

Senate Minority Leader Mitch McConnell (R., Ky.) said he hoped that if a deal could be reached Sunday, then lawmakers could vote on it Monday.

Initially there were to be four lawmakers -- one representing each party in both houses of Congress at the talks. They were Messrs. Gregg and Dodd in the Senate and Reps. Barney Frank (D., Mass.) and Blunt in the House. Mr. Frank is the chairman of the House Financial Services Committee, Mr. Blunt is the Minority Whip, while Mr. Dodd is the chairman of the Senate Banking Committee hearing, and Mr. Gregg is the ranking member on the Senate budget panel.

But they were joined by several other senior Democrats, and there are as of late Saturday nine Democrats in the room compared with just the two Congressional Republicans, and Paulson.

After an apparent agreement was announced by lawmakers Thursday, House Republicans threw a wrench into the process by saying they would not support the deal, proposing instead their own alternative plan.

That plan would be based around the idea of an industry-funded insurance pool to provide certainty to the markets, rather than a taxpayer-funded scheme.

Mr. Conrad, the chairman of the Senate Budget Committee, said the insurance proposal had come up earlier in the negotiations, but that Treasury and the Federal Reserve rejected it.

Mr. Schumer said it could end up bankrupting firms, given the premiums would be so high.

House Republicans appeared to be conceding the point that the insurance scheme wouldn't replace the asset purchase plan as they had previously insisted.

The Republicans' priority is "making sure there is an insurance program in there in the tool kit of the secretary," said Rep. Adam Putnam of Florida, the chairman of the Republican House Conference.