The Financial System Bailout: Deal or No Deal?

Congressional leaders announce a pact in principle, but it stalls under resistance from rank-and-file Republicans. McCain says he will debate Obama after all

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The deal is on. No, it's off. No, it's on again.

Thursday was a day in Washington that would have tried the patience of Monty Hall. After an early-afternoon announcement that lawmakers had achieved the broad outlines of an agreement to rescue the financial markets with up to $700 billion of government investment, a flurry of political jockeying threatened to scuttle hopes of a deal. A high-profile meeting of congressional leaders and Presidential candidates John McCain and Barack Obama, seemed to yield little more than recriminations. And while lawmakers were slated to begin negotiations again late Friday morning, it was unclear who would take part.

In a very brief address Friday morning, President George W. Bush cautioned that reaching an agreement could take time. "The legislative process is not very pretty," he said. "But we are going to get a package done."

The Presidential campaign continued its gyrations as well. Shortly before noon on Friday, McCain announced he would, in fact, go to Oxford, Miss., to debate Obama as planned. The campaign had been set spinning on Wednesday when McCain proposed postponing the foreign-policy debate so he could head to Washington to help out, and suggested he might not take part if legislation addressing the financial crisis weren't complete. Now it appears the debate will focus on the financial crisis as well.

The stage was set for drama from the start. After several days of nearly nonstop negotiations, congressional leaders scrambled Thursday to hammer out a compromise agreement on Treasury Secretary Henry Paulson's proposed $700 billion financial system bailout in advance of an emergency White House meeting called by Bush

Adding to the tension, the White House meeting was also attended by Presidential contenders Barack Obama and John McCain—who had announced on Wednesday, Sept. 24, that he was suspending his campaign to return to Washington and help win an agreement on the controversial deal. With anxious voters ever more worried about the economy, and much of the public upset at the high cost of the bailout, the two candidates have sparred repeatedly over the last week, as each has tried to convince voters that he would be better placed to lead the nation amid the financial crisis.

By the time Obama and McCain arrived in town from the campaign trail, however, congressional leaders had already announced they had a preliminary agreement in hand. On Thursday morning, Senators Chris Dodd (D-Conn.) and Robert Bennett (R-Utah) and Representative Barney Frank (D-Mass.) said they had a deal in principle, though no details were offered. Some emerged as the day went on, but it also became unclear how solid Republican support for that deal was.

Restless House Republicans

As business and consumer lobbyists scrambled to find out what was still on the table and what was off it, several competing drafts of the potential agreement circulated around the capital. The few congressional aides in the know warned that it was all still subject to change. Lobbyists weren't the only people scratching their heads: With negotiations limited to a small group of congressional leaders, many members of Congress and their staffers appeared to have little idea as to what the package contained.

All of this did little to calm those who oppose the plan, either because of its hefty cost or because they are ideologically against the government moving so extensively to counteract private-sector failures. The late-morning agreement announced by Dodd "is obviously no agreement," said Senator Richard Shelby (R-Ala.), the top Republican on the Senate Banking Committee, as he emerged from the White House meeting. "There are still a lot of different opinions."

Meanwhile, some conservative Republicans in the House, led by Representative Eric Cantor (R-Va.), began circulating a counterproposal they contended would shore up the economy and U.S. markets at far less cost to taxpayers. Their plan would make use of a government-run mortgage insurance program, rather than have Uncle Sam buy overvalued mortgages from banks and other institutions.

Paulson Urges Speed

For all of the uncertainty, it appeared that a deal may be quite close, albeit one that faces opposition from at least a sizable crew of Republicans. Although no final agreement was reached at the meeting, White House spokeswoman Dana Perino said that the Administration and congressional leaders were continuing to work closely to forge a package. Indeed, chieftains from both parties in the House and Senate met again with Paulson and Federal Reserve Chairman Ben Bernanke on Thursday night, though they disbanded shortly after 10 p.m. with plans to regroup in the morning.

The Treasury Dept. issued a statement late Thursday urging fast finalization: "Secretary Paulson appreciates the hard work by members on both sides of the aisle to address the threat we face to our economy. Noting difficult credit market conditions, he urged members of both parties to complete legislation quickly. Treasury staff has been working with congressional committee staff since Saturday. There are still open issues to be resolved, and we are committed to resolving them."