Deal Would Phase in Bailout Funds

The leaders of House and Senate banking committees reached a bipartisan agreement Thursday on the framework for legislation authorizing Treasury’s ambitious $700 billion rescue plan for the financial markets.

The final language of the bill must still be negotiated with Treasury, which watched nervously from the outside as the closed-door meeting ran close to three hours in the Capitol. But the announcement gives renewed momentum to the massive government intervention, which the administration badly wants approved before the markets open next week.

“We think we have fundamental agreement on a set of principles,” said Senate Banking Committee Chairman Chris Dodd (D-Conn.). “We’re very confident we can act expeditiously, and we’ve done a good job arriving at that kind of consensus.”

Those principles will include improved oversight of the program, as well as a plan to phase in the $700 billion investment in stages, while still assuring the administration a virtual free hand for at least the first $350 billion.

There is a greater emphasis on efforts not just to relieve Wall Street firms of their bad debts but also to help homeowners threatened by foreclosure. Companies that benefit from the plan would be expected to limit pay and severance packages for their executives, and community banks are expected to benefit from a new $3 billion tax break as a result of their stock losses in the government takeover of the two mortgage finance giants, Fannie Mae and Freddie Mac.

The announcement came just hours before a White House meeting planned for Thursday afternoon, at which President Bush and the two presidential candidates, Sens. John McCain and Barack Obama, are expected to meet with congressional leaders as well as some of the same lawmakers from the House Financial Services and Senate Banking Committees.

It’s very unlikely that a final agreement can be reached with Treasury prior to that meeting, which was called by Bush at the urging of McCain. But Sen. Bob Bennett (R-Utah) said he believed that legislation could be finalized in time for Congress to act Friday or this weekend.

Nonetheless, the introduction of presidential politics into the process could still backfire, and it has already fed suspicions on both sides. Democrats worry that the White House meeting will become a photo and political opportunity for McCain at the expense of Obama.

At the same time, Treasury worried that it was excluded from the long meeting Thursday, precisely because Democrats wanted to stall any final agreement until after the White House session.