Congressional leaders emerged from a meeting with President Bush Thursday with no agreement on implementing a plan to buy billions in troubled assets from banks and financial institutions.
Although Democrats emerged from a long negotiating session earlier in the day with Republican lawmakers claiming to be near a consensus on legislation authorizing the plan, GOP leaders leaving the White House meeting said no agreement had been reached.
Alabama Republican Sen. Richard Shelby, who is opposed to a bailout and did not attend the earlier negotiation session, came out of the White House meeting saying there was "obviously no agreement," the Associated Press reported. Republican leaders in the House and Senate also denied a deal had been struck, AP said.
Shelby is the ranking Republican on the Senate Banking Committee, which is considering draft legislation proposed by Sen. Chris Dodd, D-Conn., that would allow the Bush administration to implement a revised version of the plan.
The Bush administration wants Congress to authorize a $700 billion debt issue to allow the government to buy up "frozen" assets that banks can’t sell except at large losses, including mortgage-backed securities backed by poorly performing loans.
While Democrats say the plan should also include direct help for troubled borrowers and protections for taxpayers, some Republicans want any government program aimed at unfreezing credit markets structured differently. Some House Republicans have proposed that the government provide insurance to private companies that agree to hold frozen assets, AP reported.
The compromise Democrats are pushing would reportedly give the Treasury Department the initial authority to borrow up to $350 billion, with Congress reserving the right to veto the final $350 billion.
The Wall Street Journal’s Real Time Economics blog published the text of an "agreement on principles" that was said to have come out of the negotiations that took place before the White House meeting.
The agreement "requires that any transaction include equity sharing" and that the Treasury Department "maximize and coordinate efforts to modify mortgages for homeowners at risk of foreclosure."
The agreement would also require "loan modifications for mortgages owned or controlled by the Federal Government."
Although Democrats could presumably push legislation through the House and Senate without the full cooperation of Republican lawmakers, the Bush administration would have to sign off on it. White House officials said Thursday that progress toward an agreement was being made.
One proposal Democrats had put forward that the administration is said to be particularly opposed to — giving bankruptcy judges the power to rewrite the terms of loans on troubled borrowers’ principal residences — was not included in the agreement in principles published by the Journal.
Lawmakers from both parties said negotiations on the plan could now drag into the weekend, raising speculation that the Federal Reserve will institute an emergency cut in short-term interest rates if an agreement can’t be reached.
Many of the banks and financial institutions that own assets the Bush administration wants to buy are in danger of going out of business or have cut back on lending because they cannot raise capital.
Credit markets have become increasingly stressed in recent weeks, reversing a trend in which mortgage rates fell in the aftermath of the government’s decision to place mortgage financiers Fannie Mae and Freddie Mac in conservatorship. That move resolved any questions that the government would stand behind Fannie and Freddie’s debt, and allowed them to continue to raise the capital needed to fund their mortgage purchases and guarantees.
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