Capital Markets

Deal or No Deal? An Agreement Emerges

Democratic and Republican lawmakers are reported to be preparing a draft of a $700b bailout plan to take to Secretary Paulson soon.
Stephen TaubSeptember 25, 2008

Congress has reached an agreement in principle to pump $700 billion into toxic mortgages as part of a plan designed to free up banks’ ability to lend again.

“We are very confident that we can act expeditiously,” said Sen. Christopher Dodd (D-CT).

“I now expect that we will indeed have a plan that can pass the House, pass the Senate, (and) be signed by the president,” said Sen. Bob Bennett (R-UT), according to the Associated Press.

Tony Fratto, the White House deputy press secretary said the announcement was “a good sign that progress is being made,” according to the wire service.

One sticking issue remains whether mortgages can be amended in bankruptcy court, according to CNBC, which cited Rep. Barney Frank (D-MA).

The deal probably will include some sort of phasing in of the money, a proposal pushed by Sen. Charles Schumer (D-NY), several reports said, noting that initially $250 billion would be applied to the program, with $100 billion designed to be freed up later, as needed.

According to the Wall Street Journal online, lawmakers agreed that limits on “golden parachutes” among companies participating in the plan, and the use of warrants would apply to all companies.

The paper’s online site was also reporting that representatives and senators are now creating a draft to be taken to a meeting with Treasury Secretary Henry Paulson today. Treasury has opposed conditions that are high on some lawmakers’ lists, like limiting executive pay on any broad basis.

The paper was also reporting that Sen. Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee and a vocal opponent of bailing out investment banks and other companies, was absent from the congressional meetings. He was replaced by the number-two Republican on the committee, Bob Bennett.