Wall Street May Manage Own Bad Debt

Read Treasury's Fact Sheet on Bailout

Under authority sought by the Treasury Department, the government could purchase as much as $700 billion in mortgage-related assets from U.S.-headquartered institutions. The Treasury, meanwhile, is floating the idea of having Wall Street asset managers oversee the toxic debt, CNBC has learned

The participation of banks in the problem loan pool will be "primarily American" with some participation by US-affiliates of foreign banks, Congressional leaders told CNBC. Foreign governments would not be eligible under any scenario currently under discussion, they said.

Congressional leaders also said the Treasury's initial proposal "has nothing in it" as of now because Treasury Secretary Henry Paulson is pushing for maximum flexibility.

The legislation also does not currently include warrants for the government to take stakes in participating institutions, as it did in the AIG bailout, these leaders said.

There is a very strong push from some Democrats to include salary restrictions for CEOs of participating financial institutions. But Paulson is resisting the idea, calling it a "poison pill."

Democrats also are seeking to include something for "Main Street" in the bill, such as relief for distressed mortgage holders.

House Speaker Nancy Pelosi initially was inclined to accept Paulson's wish that a second economic stimulus plan not be included in the bill. But some Democratic members are pushing back, trying to get it attached in return for support.

The outcome may hinge on how many Republicans defect and oppose the package. The more Republican who vote no, the more Democrats have leverage to insist on their terms.

So far, Republican support has appeared reasonably strong, but that could change quickly as the jockeying in Congress continues.

For Investors

The Treasury's bailout proposal is just one of a series of measures unveiled in the past few days as the Treasury and Fed try to unfreeze credit markets and prevent a growing storm that could engulf the global economy.

The Treasury said on Friday it would siphon up to $50 billion from a fund established in the 1930s to backstop the rattled U.S. money market mutual fund industry. This long-safe corner of financial markets, home to some $3.5 trillion of deposits, has increasingly appeared at risk

Money market fund assets dropped by a record $169.03 billion in the week ended September 17 as jittery investors pulled money out.

The Securities and Exchange Commission also imposed a 10 trading-day ban on short sales of 799 financial stocks.

As the government brought out the big guns to tackle the financial crisis, investment bank Morgan Stanley bought itself some time to come up with a plan for its future and talked to Wachovia and other banks about a merger.

On Saturday, a U.S. bankruptcy judge approved British bankBarclays' deal to purchase the core U.S. business of Lehman Brothers Holdings .Congressional leaders have promised swift action on the bailout package but many details are still to be worked out.

New York Democratic Sen. Charles Schumer, chairman of Congress' Joint Economic Committee, said the government plan is a good start.

"But it includes no visible protection for taxpayers or homeowners. We look forward to talking to Treasury to see what, if anything, they have in mind in these two areas," he said.

Schumer added that Congress hopes to pass the plan this week. "The aim is to get this on the president's desk by Friday," Schumer said at a news conference.

As lawmakers' aides huddled on Capitol Hill, President Bush acknowledged the plan would put large amounts of taxpayer money on the line to buttress shaky markets.