Unpopular bailout plan on track in Congress THE ECONOMY IN TURMOIL Sunday target: Democrats insist GOP help carry burden of passing unpopular measure

Speaker of the House Nancy Pelosi, D-Calif., left, listens as House Financial Services Committee Chairman Barney Frank, D-Mass., speaks about the financial market turmoil at a news conference on Capitol Hill in Washington, Friday, Sept. 26, 2008. less Speaker of the House Nancy Pelosi, D-Calif., left, listens as House Financial Services Committee Chairman Barney Frank, D-Mass., speaks about the financial market turmoil at a news conference on Capitol Hill in ... more Photo: Susan Walsh, AP Photo: Susan Walsh, AP Image 1 of / 3 Caption Close Unpopular bailout plan on track in Congress 1 / 3 Back to Gallery

House Speaker Nancy Pelosi said Congress would pass a $700 billion debt bailout soon and that negotiations were back on track after Thursday's political theatrics. Leaders were hoping for a Sunday deadline to calm markets before they open on Monday, but they would not commit to that date.

The San Francisco Democrat made clear, as she has all along, that her party could not and would not pass the unpopular measure on its own. Democrats refuse to shoulder full responsibility for a bailout engineered by the Bush administration and insist that at least half of the GOP members of Congress join in. Many Democrats are expected to vote against the plan.

Democrats and Republicans alike are livid that they are being asked by what they view as a discredited administration to spend such an astonishing sum, which will top $1.3 trillion when previous loans and bailouts related to the mortgage meltdown are included.

Pelosi, who has begun referring to the "Bush financial crisis," said she and others were "quite stunned to see a $700 billion price tag" on the plan Treasury Secretary Henry Paulson dropped in the lap of Congress last weekend.

But she said that with the major changes that are being incorporated, both parties will swallow hard and pass it, convinced of its necessity by the dire warnings of economic collapse by Paulson and Federal Reserve Chairman Ben Bernanke. The failure Thursday of Washington Mutual Inc., which was bought by banking giant JPMorgan Chase & Co., added to the sense of urgency.

'The Paulson Plan'

"We will not leave until legislation is passed that is signed by the president," she said. House Republicans backed off their demand to substitute an entirely different approach. Democrats said they would incorporate some GOP suggestions in what is now being called "the Paulson Plan."

Republicans are especially insistent that none of the bailout money be passed through the liberal low-income housing group known as ACORN, which had activists on Capitol Hill this week. They also are pinning the roots of the subprime crisis on an expansion of the Community Reinvestment Act by the Clinton administration that required banks to lend money to people with shaky credit, designed to prevent banks from "redlining" poor neighborhoods by refusing loans.

Even with all the changes that both parties want and the administration has agreed to - such as requiring that taxpayers get an equity stake in bailed out companies, limiting executive pay and doling out the money in installments - it will take an all-out effort by both parties' leaders to pass the bailout.

'Overrated' warnings

Democratic Rep. Pete Stark of Fremont, a former banker, said he probably will not support it, calling dire warnings of a credit meltdown "grossly overrated."

"I think we are being railroaded in the same manner we were to vote for Iraq," Stark said. "The banks of the Bay Area are in good shape, and they're bailing out Wall Street for $700 billion. It's irresponsible and reckless."

Stark said he has been working to get a third of that sum for universal health care, and that with $15 billion, all Californians could have health insurance.

He attributed at least part of the credit tightening that businesses and consumers are feeling now to the recession that economists believe has begun and the unwinding of easy credit that fed the housing bubble.

"I think people will have more trouble getting a mortgage," Stark said. "Auto dealers are going to have more trouble shedding their inventory, which isn't worth much anyway if it's all SUVs. If we found the whole Bay Area seeing the kinds of foreclosures, say that they have in Stockton, we'd probably react to that. But it's not been that way in Fremont and it's not been that way in Burlingame, or San Francisco. I think that $700 billion would hurt the value of the dollar, which would raise oil prices even further, and probably increase inflation. I think we're rushing this through too quickly."

Rep. Jeff Flake, R-Ariz., said conservatives have been burned by President Bush before on things such as the costly Medicare drug benefit and are in no mood to swallow such a large government intervention in the economy.

"This thing, 'We've got to get this done tomorrow, we can't deviate, it has to be exactly like this,' there were a lot of eyes rolling around the room, saying, 'We've heard this before,' " Flake said.

Sen. Dianne Feinstein, a California Democrat, went to the Senate floor to urge that the modified bailout be passed, despite receiving "more than 50,000 calls and letters, the great bulk of them in opposition to any form of meeting this crisis with financial help from the federal government."

'No good options'

"None of us wants to be in this position, and there are no good options here," Feinstein said. "Nobody likes the idea of spending massive sums of government money to rescue major corporations from their bad financial decisions. But no one also should be fooled into thinking this problem only belongs to the banks and that it's a good idea to let them fail."

She said California's unemployment rate is already at 7.7 percent, the third highest in the nation, with 1.3 million people out of work, and that 800,000 more foreclosures are expected in the state this year.

"The situation, I believe, is grave, and quick, prudent action is needed," Feinstein said.