The Financial System Bailout: Deal or No Deal?

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So what's likely to be in a final deal? Congressional aides say agreement has been reached to approve the Treasury Dept.'s request for $700 billion, though it would be doled out in tranches. Treasury would get $250 billion immediately, then an additional $100 billion after it certifies that more is needed. But the final $350 billion could be withdrawn by a joint resolution of Congress.

Battle over Executive Pay Caps

Treasury appears close to agreeing in principle to congressional demands that Uncle Sam receive equity warrants in exchange for helping some of the troubled firms. As now proposed by congressional leaders, the government would receive warrants in cases where it engages in a transaction to help recapitalize an individual firm, but not when companies participate more broadly in the reverse auctions the government is expected to hold in order to buy up mortgage-backed securities. The proposed deal also directs that most of any profits eventually earned by the government when it sells off the mortgage debt should go to pay down the national debt, though a small slice is to be directed toward creating affordable housing.

Companies participating in the program would also have to agree to limit executive pay. According to one source, negotiators were wrangling over whether a cap could be placed on the dollar amounts of salaries deductible from corporate taxes. The practice of offering "golden parachutes" to departing executives would apparently be restricted.

It was unclear whether one of the most controversial provisions—allowing homeowners to get mortgage obligations reduced in bankruptcy court—was still included. That measure has been heavily resisted by the financial-services industry and has little, if any, Republican support; many analysts say its inclusion in the final package would be a deal breaker. One Democratic aide said it was still on the table in the afternoon, primarily as a bargaining chip.

"A Two-Step Process"

Congressional negotiators said they expected to hammer out the final terms of the deal with the White House by the weekend. Even if that occurs, significant hurdles remain. The package faces spirited opposition, especially from rank-and-file Republicans in the House. If they don't go along with it, Democrats say they won't push the package forward on their own, thereby risking the wrath of voters unhappy with the costly bailout.

"This is a two-step process. First, they've got to get a deal among the leaders," says Daniel Clifton, head of the Washington office of investment firm Strategas Research Partners. "But then they've got to get everyone else to go along."

And though most analysts assume that is likely at this point, it's not a done deal. That's where McCain comes in. Much will depend on whether he ends up backing the package and whether this might help to build Republican support. While upholding the need for aid in principle, he has been critical of the plan as it has been structured, and his comments on it have been ambiguous. Following the White House meeting, however, McCain expressed cautious optimism on the CBS Evening News. "In this case, I am confident that we will reach an agreement that gets a majority of my colleagues on my side of the aisle, as well as a majority of the other side," he said. Not long before, House Republicans opposing the plan had suggested McCain was sympathetic to their side.

McCain Is "the Wild Card"

Obama, appearing on CNN following the White House meeting, said there "has to be a sense of urgency on the part of everybody.…We've got to move rapidly." He said he believed there will be a deal, but that work remains to be done to bring about an agreement between the Democrats, the Administration, and House Republicans.

The question now is whether McCain will ultimately back the package, and if so, how strongly he'll work to build support among unhappy Republicans. One Republican aide argues that if McCain comes out strongly in favor of the deal and makes clear that it is necessary, he will provide Republicans with the political cover they need to explain their support for the bailout to their unhappy constituents. If he does this, he could help bring around enough votes to get the deal done. But if he doesn't support the deal, all bets are off. Winning Republican backing without McCain's support, says Clifton, will be tough.

"The wild card here is John McCain," adds a key Democratic staffer close to the negotiations. "The Republicans are very upset—they just hate this idea, they don't want to do it. But given the risks, they know they have to." The role McCain now wants to play in the process, the staffer says, introduces a whole "unknown element."

The open question, of course, is how politics will factor into McCain's use of whatever leverage he holds to push forward a deal. Democrats are leery of McCain appearing to sweep in at the last minute to help win an agreement; that, needless to say, could boost his standing against Obama. But given the public anger over the proposed deal, it's unclear how it would play if McCain were to insist on far more substantial changes in exchange for his backing. At stake is not just the election, but the health of the economy.

Sasseen is Washington bureau chief for BusinessWeek. Francis is a writer in BusinessWeek's Washington bureau.