$700 Billion Is Sought for Wall Street in Vast Bailout

WASHINGTON -- The Bush administration on Saturday formally proposed a vast bailout of financial institutions in the United States, requesting unfettered authority for the Treasury Department to buy up to $700 billion in distressed mortgage-related assets from the private firms.

The proposal, not quite three pages long, was stunning for its stark simplicity. It would raise the national debt ceiling to $11.3 trillion. And it would place no restrictions on the administration other than requiring semiannual reports to Congress, granting the Treasury secretary unprecedented power to buy and resell mortgage debt.

"This is a big package, because it was a big problem," President Bush said Saturday at a White House news conference, after meeting with President Álvaro Uribe of Colombia. "I will tell our citizens and continue to remind them that the risk of doing nothing far outweighs the risk of the package, and that, over time, we're going to get a lot of the money back."

After a week of stomach-flipping turmoil in the financial system, and with officials still on edge about how global markets will respond, the delivery of the administration's plan set the stage for a four-day brawl in Congress. Democratic leaders have pledged to approve a bill but say it must also include tangible help for ordinary Americans in the form of an economic stimulus package.

Staff members from Treasury and the House Financial Services and Senate banking committees immediately began meeting on Capitol Hill and were expected to work through the weekend. Congressional leaders are hoping to recess at the end of the week for the fall elections, after approving the bailout and a budget measure to keep the government running.

With Congressional Republicans warning that the bailout could be slowed by efforts to tack on additional provisions, Democratic leaders said they would insist on a requirement that the administration use its new role, as the owner of large amounts of mortgage debt, to help hundreds of thousands of troubled borrowers at risk of losing their homes to foreclosure.

"It's clear that the administration has requested that Congress authorize, in very short order, sweeping and unprecedented powers for the Treasury secretary," the House speaker, Nancy Pelosi of California, said in a statement. "Democrats will work with the administration to ensure that our response to events in the financial markets is swift, but we must insulate Main Street from Wall Street and keep people in their homes."

Ms. Pelosi said Democrats would also insist on "enacting an economic recovery package that creates jobs and returns growth to our economy."

Even as talks got under way, there were signs of how very much in flux the plan remained. The administration suggested that it might adjust its proposal, initially restricted to purchasing assets from financial institutions based in the United States, to enable foreign firms with United States affiliates to make use of it as well.

The ambitious effort to transfer the bad debts of Wall Street, at least temporarily, into the obligations of American taxpayers was first put forward by the administration late last week after a series of bold interventions on behalf of ailing private firms seemed unlikely to prevent a crash of world financial markets.

A $700 billion expenditure on distressed mortgage-related assets would roughly be what the country has spent so far in direct costs on the Iraq war and more than the Pentagon's total yearly budget appropriation. Divided across the population, it would amount to more than $2,000 for every man, woman and child in the United States.

Whatever is spent will add to a budget deficit already projected at more than $500 billion next year. And it comes on top of the $85 billion government rescue of the insurance giant American International Group and a plan to spend up to $200 billion to shore up the mortgage finance giants Fannie Mae and Freddie Mac.

At his news conference, Mr. Bush also sought to portray the plan as helping every American. "The government," he said, "needed to send a clear signal that we understood the instability could ripple throughout and affect the working people and the average family, and we weren't going to let that happen."

A program to help troubled borrowers refinance mortgages -- along with an $800 billion increase in the national debt limit -- was approved in July. But financing for it depended largely on fees paid by Fannie Mae and Freddie Mac, which have been placed into a government conservatorship.

Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, said in an interview that his staff had already begun working with the Senate banking committee to draft additions to the administration's proposal.

Mr. Frank said Democrats were particularly intent on limiting the huge pay packages for corporate executives whose firms seek aid under the new plan, raising the prospect of a contentious battle with the White House. Continue>>>

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