Bush will meet with congressional leaders on the financial crisis. White House meeting may make or break bailout plan

Negotiations over Treasury’s $700 billion rescue plan for the financial markets have reached a make-or-break stage, with bipartisan meetings Thursday morning on Capitol Hill among top lawmakers and an afternoon get-together at the White House featuring the two presidential candidates, Sens. John McCain and Barack Obama.

President Bush, in a televised address to the nation Wednesday night, warned that action is needed quickly and invited in his two would-be successors. But the result is a highly charged, even dangerous political atmosphere that could jeopardize the progress already made by Treasury Secy. Henry Paulson and Federal Reserve Chairman Ben Bernanke.


House and Senate Democrats say they are near a deal on legislation, but it’s more among themselves at this point and faces uncertain support. At the same time, Bush has acted as almost McCain’s agent in setting up the White House meeting, which has been greeted with suspicion by the same committee chairmen the secretary needs to succeed.

“We’re trying to rescue the economy, not the McCain campaign,” said House Financial Services Committee Chairman Barney Frank (D., Mass.), who has worked most closely with Paulson and Bernanke. “All of a sudden, now that we’re on the verge to make a deal, John McCain airdrops himself in to help us make a deal?”

How close anyone is to a real bipartisan deal acceptable to Treasury is open to question. But Frank and Senate Banking Committee Chairman Christopher Dodd (D., Conn.) are slated to meet Thursday morning with their Republican counterparts on the two committees, and the two Democrats have an agreement among themselves of what they would like added to the Treasury proposal.

In an effort to broaden support, the draft Democratic measure includes new tax relief for smaller community banks who were hurt by the government takeover of the two mortgage finance giants, Fannie Mae and Freddie Mac. And Democrats are pressing for a greater equity interest for taxpayers in companies helped by the Treasury plan.

Treasury is sure to resist some changes. But Paulson has shown a greater openness to revisions in the plan to win needed votes.

Appearing before Frank’s committee, the former Goldman Sachs CEO departed from his prepared text to embrace something his old colleagues in the financial markets hate: caps on pay and severance packages enjoyed by executives helped by the rescue.

And behind closed doors, Treasury is showing more — albeit reluctant — openness to phasing in the $700 billion Paulson wants over time to ease the concerns of lawmakers. “The $700 billion number is moving,” Frank told Politico. “It will all be there if they need it, but it’s phased.”

But even as Paulson ran from one Capitol meeting to another, McCain announced he was suspending his campaign to come back and deal with negotiations in Washington. He also called for Friday’s first scheduled presidential debate to be delayed.

The Arizona senator’s first target appeared to be Obama. But Paulson could also be a casualty, since McCain said “no consensus” has developed to support Treasury’s plan and he did not believe “the plan on the table will pass as it currently stands.”

“I am calling on the president to convene a meeting with the leadership of both houses of Congress, including Sen. Obama and myself,” said McCain. “It is time for both parties to come together to solve this problem.”

Obama promptly rejected McCain’s invitation to join him back in Congress. “What I think is important is that we don’t suddenly infuse Capitol Hill with presidential politics,” Obama said before cameras in Florida. And in a shot at his rival, he suggested that suspending the campaigns wasn’t needed for talks to be fruitful.

“Presidents are going to have to deal with more than one thing at a time,” Obama said. “It’s not necessary for us to think that we can do only one thing and suspend everything else.”

But after Bush issued his own invitation, Frank said he expected Obama to come to the meeting Thursday.

Asked about McCain’s sudden interest, Senate Majority Leader Harry Reid (D-Nev.) smiled wryly: “With all due respect, we’re doing just fine.” And the candidate’s announcement surprised his fellow Republicans on the Financial Services Committee, where Frank and Paulson have in fact had some success in nurturing bipartisan talks in the panel.

The initial reaction of Alabama Rep. Spencer Bachus, the ranking Republican, was to point McCain away from the House and toward the Senate. Florida Rep. Adam Putnam, a committee member and chairman of the party conference, was more tempered but said that McCain and Obama were most valuable in speaking to the need for action rather than getting into the legislative details.

“It would be very helpful if McCain and Obama, together or separately, were to agree on the need for intervention,” Putnam said. “That would depoliticize and therefore detoxify this environment and allow a consensus to move forward in a timely fashion.”

On one level, McCain’s presence — together with Bush’s speech — is welcome political cover for Republican leaders such as Rep. John A. Boehner (R-Ohio), the minority leader.

“There is politics in everything we do,” said Rep. Tom Davis (R-Va.). “I think there is a lot of denial among members of both parties about what this really means. So I think McCain can do a lot of things if he wants to. I think Obama can do a lot of things if he wants to. ... They can clearly have influence.”

Putnam was pessimistic that any plan had the “traction” to win passage this week as once hoped. And after meeting with Paulson and Boehner on Wednesday, House Speaker Nancy Pelosi (D-Calif.) left open the possibility that House action will now slip into next week, given the need for further adjustments.

“We’re going to get it right,” Pelosi said. “We’re going to do what we have to do. We’ll finish it when it’s ready. I would hope that it would be sooner rather than later.”

But with the elections just weeks away, there is increased concern among Republicans that the issue can’t drag on much longer. And if the fight spills into next week without resolution,--or becomes more partisan because of presidential politics-- it could also sink Paulson’s plan.

Asked if scaling back the package would win support, Boehner told Politico: “We don’t know yet.”

Privately, leaders estimated that no more than 30 to 40 Republicans would support the package at this stage. And the rebelliousness was well captured after Bush’s speech, when Rep. Thaddeus McCotter (R., Mich.) issued a statement asking, “Who’s giving the Republican response.”

“It’s moving Wall Street’s debt to Main Street. That’s a tremendous amount of money,” Rep. Sam Graves (R-Mo.) said after Paulson addressed the party Wednesday morning. The dark joke among Republicans is that the only reason they can grow their vote is that they have a growing number of members retiring this year.

“The messaging has to be cleaner,” Rep. Scott Garrett (R-N.J.) said of Paulson. Never the best speaker, the Treasury secretary is prone to stumbling more now in describing what would be in any time a difficult topic.

As initially proposed, the Treasury plan called for Congress to approve the full $700 billion up front to maximize Paulson’s leverage and send a strong signal to the markets that Washington would meet its commitment to help resolve the credit markets crunch, which threatens the larger economy.

At a Banking Committee hearing Tuesday, Sen. Charles Schumer (D-N.Y.) raised the possibility of Congress approving just $150 billion as a down payment toward the $700 billion goal — and Schumer argued that this would be enough to test the effectiveness of Treasury’s strategy.

Paulson rejected the idea then as a “grave mistake,” and after meeting with the secretary Wednesday evening, Senate Democrats said there was still “pushback.” But an administration official said Wednesday that it is an option — to help get votes — as long as the final package leaves enough room for his plan to be workable.

"There is conceptual agreement including I think with Treasury, people understand that it’s not going to be a straight $700 billion,” Frank said.

Democrats said Pelosi was now leaning toward this option as she tries to bring along her own caucus. And Mark Zandi, the chief economist for Moody’s Economy.com and someone respected by Frank, said that Congress could afford to scale back the $700 billion number or finance the plan in tranches without ruining its effectiveness.

“I think that’s a reasonable thing to do,” Zandi told Politico. He said there was no “magic” to the $700 billion figure — and in fact its very size had scared some in the private investment community. And while it is important to have some psychological impact on the markets, Zandi said that “it’s a matter of judgment” and that there was never a scientific rationale behind the higher number.