Bailout Talks Do Not Appear to Be Going Well

The mainstream media, giving reports from Barney Frank and Nancy Pelosi, who said last week there was a bailout deal imminent, are giving similar chipper reports of progress with appropriate caveats. From the New York Times, “Consensus on Rescue Plan Is Said to Be Near“:

After a tumultuous week, including a contentious meeting at the White House with President Bush and the two presidential candidates, lawmakers said they hoped to reach an agreement by Sunday night, in time for the opening of the markets in Asia.

Still, the partisan brinkmanship continued with all of the acrimony that usually accompanies the final throes of a major legislative bargaining session. Republicans accused Democrats of trying to add benefits for special interest groups, including labor unions and advocates of affordable housing, while Democrats accused Republicans of trying to undermine the efforts to limit executive pay at firms that seek government help and trying to change accounting rules to benefit big business.

The two sides were also fighting over a proposed fee on financial firms to offset some of the cost of the rescue effort.

The House speaker, Nancy Pelosi, said Congress would remain in Washington until a deal was reached. Ms. Pelosi predicted that legislation would be brought to the House floor for a vote either late Sunday or early Monday, a timetable that would give the whips in both parties perhaps 36 hours to build the wide bipartisan support that leaders are seeking.

Aides described a tense meeting on Saturday that included Senator Max Baucus, Democrat of Montana, shouting at Mr. Paulson about executive pay caps. Outside, stunned tourists visiting the Capitol watched as camera operators shoved one another to get footage of lawmakers talking outside of the meeting room. At one point, when too much information was leaking out, staff members’ BlackBerrys were confiscated and collected in a trash bin.

From the Washington Post, “Lawmakers Near Bailout Accord“:

Congressional negotiators said they were close to agreement yesterday on a $700 billion plan aimed at shoring up the U.S. financial system, and were meeting late into the evening in hopes of striking an accord that could be ratified by the House as soon as today.

Democrats and Republicans from both chambers met with Treasury Secretary Henry M. Paulson Jr. through the afternoon in an effort to forge a compromise on a variety of outstanding issues, including how quickly the government should make money available for the program and whether participating firms should be required to limit executive pay.

Talks also focused on a new issue: how to cover the cost of the program so taxpayers don’t get stuck with the bill.

Under the Bush administration’s proposal, the government would buy assets that have lost much of their value from faltering financial institutions in hopes of restoring investor confidence. That, in turn, could ease the credit crunch that has seized global markets and made it much harder for businesses and ordinary people to borrow money.

Administration officials have stressed that the ultimate cost of the bailout would be much less than $700 billion because the government would eventually sell the assets it purchased and recover most, if not all, of what it spends.

Yesterday, Democrats said they were pressing hard for further taxpayer protections, including a fee that would be imposed on the financial services industry if after five years the government had not fully recouped its money. The proposal, which did not surface in negotiations until yesterday, would help win the support of a fiscally conservative group of House Democrats known as the Blue Dogs, an important bloc of 47 votes.

New issues signal divergence, not convergence. Not a plus for wrapping up a deal quickly.

By contrast, reports from Clusterstock, which has an embed who is providing live updated, things do not sound so cheery (hat tip reader Cash Mundy). The whole thread is very informative, and here are some key bits:

Update (10:00 p.m.): Despite the happy talk about getting closer to a deal, all the new proposals we keep hearing about suggests the opposite. Rich Lowry, the editor of National Review, thinks things are falling apart on Capitol Hill: “Just talked to a friend who is plugged-in to all this who wants a deal and has tended to think all along that there will be a deal. Now he’s not so sure. He thinks the wheels are coming off. House Republicans want their insurance as a mandatory thing rather than an option, while the House Democratic caucus is imploding and pulling the deal far to the left. It’s getting ugly.”

Update (9:45 p.m.): Politico reports that there is growing interest in imposing a financial company transaction fee to pay for the bailout. Paulson is said to be open to the idea, although exactly which transaction would be subject to what kind of fees remains vague….

Update (9:10 p.m.): The Wall Street Journal reports that the mood is optimistic. But don’t expect anything soon. Cosi just delivered a bunch of food to Nancy Pelosi’s office. The key sticking point seems to be the Republican insurance program.

Several previously unheard of provisions are under consideration, according to the Journal.

Financial Stability Fund. Modelled on the commercial banking industries support for the FDIC, this would involve firms that are deemed ‘too big to fail’ paying into an insurance pool which could be used to rescue troubled financial firms.

Taxing ‘Excessive’ Salaries. In what seems to be a compromise move on executive salaries, this would eliminate the tax deductions for companies on executive compensation for top officers that is above $400,000. This would allow companies to continue to pay large salaries and eliminate the incentive for executives to avoid participating in the rescue. It would, of course, cost firms and taxpayers more.

Meanwhile, the Treasury is reportedly pushing back on attempts to stagger the rescue funds into three tranches. Paulson and his buddies want at least $500 billion in the initial tranche.

Update (8:40 p.m.): The meeting on Capitol Hill reconviened this evening but the situation is becoming more complicated not less.