Washington Tries to Wrap Up the Bailout

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More pages added little in DC

Also in Europe, the BBC reported late Sunday that the British government will take over the $92 billion loan portfolio of mortgage lender Bradford & Bingley (BB.L), whose shares have tumbled 93% in the past year. Spanish banking giant Santander (BSCH.DE) will acquire B&B's retail banking and savings business, including 200 branch offices around Britain.

In Washington on Sunday afternoon, a flurry of draft bills were circulating, often leaving recipients confused as to which was most current and what provisions remained in play. By day's end, Paulson's initial three-page proposal had swelled to more than 100 pages, filled out with provisions designed to bolster congressional oversight, boost the amount of money that taxpayers can potentially recover in return for helping struggling financial institutions, help homeowners struggling to pay their mortgages, tighten executive-compensation rules for companies selling assets to the Treasury, and even potentially allow a significant alteration in corporate accounting rules. By early evening, a unified draft was distributed by lawmakers and Administration officials.

But for all the intense negotiations over the weekend—key talks lasted until after midnight Sunday morning—the broad outlines of the bill remained remarkably similar to what was in the works Wednesday afternoon, before hopes collapsed Thursday in partisan acrimony at a White House meeting among congressional leaders, Administration officials, and Presidential candidates John McCain and Barack Obama.

Congress holds two cards

The bill would give Treasury the authority to invest up to $700 billion in a wide variety of securities tied to the foundering mortgage market, with an eye toward stabilizing the financial sector. The government would eventually resell those assets to recoup funds for taxpayers. It would also receive warrants for equity in some participating firms. The huge outlay would be doled out to Treasury in chunks under provisions similar to those in last week's drafts. The payments would commence with $250 billion; another $100 billion would come upon certification from the President that it was required; and the final $350 billion could be withheld by Congress.

One key addition: If the invest-and-sell program fails to break even after five years, Congress is to devise a way to recoup the loss from the financial industry.

The bill also gives Treasury the option—but doesn't mandate using it—to insure the assets instead of buying them. That provision was championed by conservative Republicans late last week as preferable to government investment. Many economists consider the insurance option unworkable, and some analysts say it has been included primarily to win the support of unhappy conservatives. "It's window dressing," says a source who is closely following the talks.

Insurance plan could cost months

"It's essentially the same plan we've been looking at since last week, with the addition of the insurance fund," says Howard Glaser, formerly a housing official in the Clinton Administration and chief lobbyist for the Mortgage Bankers Assn., who now runs the Glaser Group consultancy. "Everyone got a little of what they wanted: Democrats have better oversight and more foreclosure aid; Treasury got the ability to purchase assets in sufficient scale; and Republicans got the insurance fund. Everyone can claim it as a win. Whether it's actually effective or not is a different question."

Glaser adds that as the government moves ahead with the insurance plan, it could take months to create the needed bureaucracy and determine appropriate premiums and other nitty-gritty details. By contrast, he says Treasury already has a team—headed by a Goldman Sachs (Previous Page Page 1 2 3 4 Next Page