Can Congress Build a Better Bailout?

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Kristoffer Tripplaar / Getty

Republican presidential candidate John McCain, Represenative John Boehner and House Speaker Nancy Pelosi join President Bush at the White House for discussions on the bailout package on Thursday.

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One possibility that is likely to be discussed is a hybrid plan, in which Treasury would either have the authority, or possibly be required, to both buy some troubled assets and to insure them. One aide involved in the negotiations said that some estimates suggest such a plan would be only half as expensive as Paulson's initial proposal. Most importantly, it would allow wary members of Congress to say they didn't give the Administration such a huge share of taxpayer money, even if Treasury ultimately decides to use most of it.

House Democrats are not certain about such a hybrid approach and would prefer to offer insurance as just one of several tools open to Paulson, but not mandate that he use it. "I do not see why the secretary cannot accept some of those (insurance and/or loan provisions) among the options he has to choose from," Pelosi said. Congressional officials believe they have until Monday morning to come up with a package. Congress is preparing to work into the weekend with the aim of passing something by the end of Sunday, or at least having the deal locked down and then holding a vote Wednesday after the Jewish Holidays.

Earlier in the day some on Capitol Hill had speculated that the Democrats might try to go ahead, with their Senate Republican colleagues, to pass the plan without the support of most if not all House Republicans; there was even talk that they might include it as part of a continuing budget resolution to keep the federal government going that House Republicans would have a hard time voting against. But Pelosi made clear Friday afternoon that that was not a viable option: "We don't have the votes to do thatl that is our members have some reluctance on this legislation," she said.

Even as they prepared for their debate, both McCain and Obama stressed that they would be returning to Washington over the weekend to participate in the negotiations. Whether that will help or hurt progress depends on which party you ask. House Republicans Friday hailed McCain's leadership on Capitol Hill, arguing he had given them a voice after they had been all but ignored in the horsetrading earlier in the week. "McCain came into town and the message there that House Republicans are relevant, we're not going to roll the House Republicans, we're not going to gang up in House Republicans," said Spencer Bachus, a representative from Alabama who has been involved in some of the negotiations. Bachus said he told McCain on the phone earlier in the week that "we were getting steamrolled," and asked for his help. "I told him at that time that I was afraid that the Administration and the Treasury were working almost solely with the Democrats," Bachus said.

Democrats, by contrast, have made no secret of their belief that McCain's involvement in the bailout talks has made a resolution that much harder. Many of them believe that House Majority Leader John Boehner, who got a standing ovation from his caucus Friday morning, wanted to slow down the process so that McCain could take credit for bringing all sides together. Such suspicions were further fueled by the fact that McCain's campaign manager Rick Davis had been actively meeting with House Republican leaders on Thursday, even as McCain had claimed to have suspended his campaign to help work out a deal. Obama campaign adviser Anita Dunn says they had no campaign staffers on the Hill Thursday night, with the possible exception of Phil Schiliro, the campaign's congressional liaison. "If they're trying to say this isn't about politics, then why did he have his campaign manager up there negotiating?" Though there is no suggestion that anything Davis was doing was illegal or unethical, one Republican source says that Davis' presence was "just a weird thing," and that his sense is that, after the deal's meltdown at the White House, McCain and Davis "were kind of looking for an escape hatch at that point."

The McCain campaign vehemently denies that Davis was doing any kind of negotiating. "It is not a legal problem for Sen. McCain to ask campaign aides for advice or to go to the Hill... Rick was there, he was not negotiating. He was there gathering information." The aide added that all decisions remain with McCain and his senate staff. "Our counsel blessed him going to the hill." The campaign also pointed out that Obama's campaign spokesperson Robert Gibbs was giving statements to reporters at the Capitol Thursday, though there is no evidence that Gibbs or any other top-level Obama campaign adviser was meeting behind closed doors with House or Senate members. And having Davis — a former lobbyist who is already under the microscope because of his firm's previous work for Freddie Mac — meeting with House members could undercut McCain's stance as an honest broker, especially considering he attacked Obama Friday for playing politics with the bailout negotiations.

The specter of the campaign hanging over the high stakes talks on Capitol Hill only makes Wall Street more nervous that a deal will be hard to come by.

The urgency of the task at hand was underscored by the news Friday that yet another financial institution — Washington Mutual of Seattle — had been taken over by the government and had most of its assets sold off to JP Morgan Chase. Even Democrats were unsettled by the urgency with which they were being called upon to act in the face of what the Bush Administration was warning is an imminent threat. "It's not like our guys are saying, 'We really want to pass this bill.' We've seen this before," noted one Democratic Capitol Hill veteran, alluding to the run-up to the Iraq war. "We found the weapons of mass destruction. They're at Wash Mutual."

— With reporting by Michael Scherer/Oxford, Mississippi

(See TIME's pictures of the week)

(See the ten steps to the financial meltdown here and TIME's photos of the global financial crisis here.)

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