The Impeachment Hearing Room

MUSIC APPROPRIATE TO THE DAY

Well; we have a wave of Tent Cities springing up like mushrooms in the dark, for the most part out of mainstream media camera focus. We have families driven to stealing food from charity homeless food supply depots, others already living on cat and dog food and “the average American” tightening the grocery belt with lesser meal options in the face of runaway price increases and for the most part in the bitching like hell stage.

That won’t last long if it all comes crashing down. Bailout Protests have already set in and they are only getting worse in the face of worsening conditions and a failure to find a working solution to move this economy. People all ready rage filled with “piracy at the gas pump” aren’t going to be tolerant very much longer. Folks like us have wanted the public galvanized in the name of Impeachment, restoration of The Constitution and a whole litany of White House acts of criminality and we have been frustrated in our ever endeavor, but hit Americans in their pocket books and wallets and there will be hell to pay…”It’s The Economy Stupid!”

The powers that be in the Federal Government are well aware that if correction of course is not achieved rapidly that civil Insurrection will be wide spread and they are getting ready. This is a clear indication of a lack of faith in their own abilities to resolve the problems facing this nation and the awareness that there is a “breaking point”.

(REPOSTED HERE:
http://theimpeachmenthearingroom.blogspot.com/2008/09/economy-crumbles-politicians-fumble.html

U.S. troops returning from duty in Iraq will be carrying out homeland patrols in America from October 1st in complete violation of Posse Comitatus for the purposes of helping with “civil unrest and crowd control” - which could include dealing with unruly Americans after a complete economic collapse.


This shocking admission was calmly reported on September 8th by the Army Times website, which reports that from the beginning of next month the 3rd Infantry Division’s 1st Brigade Combat Team “Will be under the day-to-day control of U.S. Army North, the Army service component of Northern Command, as an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks.”

The article notes that the deployment “marks the first time an active unit has been given a dedicated assignment to NorthCom, a joint command established in 2002 to provide command and control for federal homeland defense efforts and coordinate defense support of civil authorities.”

The purpose of the unit’s patrols includes helping “with civil unrest and crowd control or to deal with potentially horrific scenarios such as massive poisoning and chaos in response to a chemical, biological, radiological, nuclear or high-yield explosive, or CBRNE, attack.”

The unit will be on homeland patrol for at least 20 months before returning to Iraq or Afghanistan in early 2010, according to the report.

Training for homeland operations has already begun at Fort Stewart and at Peterson Air Force Base in Colorado Springs.

Ominously, the report states that, “The 1st BCT’s soldiers also will learn how to use “the first ever nonlethal package that the Army has fielded,” 1st BCT commander Col. Roger Cloutier said, referring to crowd and traffic control equipment and nonlethal weapons designed to subdue unruly or dangerous individuals without killing them.”

The open admission that U.S. troops will be involved in law enforcement operations as well as potentially using non-lethal weapons against American citizens is a complete violation of the Posse Comitatus Act and the Insurrection Act, which substantially limit the powers of the federal government to use the military for law enforcement unless under precise and extreme circumstances.

Section 1385 of the Posse Comitatus Act states, “Whoever, except in cases and under circumstances expressly authorized by the Constitution or Act of Congress, willfully uses any part of the Army or the Air Force as a posse comitatus or otherwise to execute the laws shall be fined under this title or imprisoned not more than two years, or both.”

Under the John Warner Defense Authorization Act, signed by President Bush on October 17, 2006, the law was changed to state, “The President may employ the armed forces to restore public order in any State of the United States the President determines hinders the execution of laws or deprives people of a right, privilege, immunity, or protection named in the Constitution and secured by law or opposes or obstructs the execution of the laws of the United States or impedes the course of justice under those laws.”

However, these changes were repealed in their entirety by HR 4986: National Defense Authorization Act for Fiscal Year 2008, reverting back to the original state of the Insurrection Act of 1807.

The original text of the Insurrection Act severely limits the power of the President to deploy troops within the United States.

For troops to be deployed, a condition has to exist that, “(1) So hinders the execution of the laws of that State, and of the United States within the State, that any part or class of its people is deprived of a right, privilege, immunity, or protection named in the Constitution and secured by law, and the constituted authorities of that State are unable, fail, or refuse to protect that right, privilege, or immunity, or to give that protection; or (2) opposes or obstructs the execution of the laws of the United States or impedes the course of justice under those laws. In any situation covered by clause (1), the State shall be considered to have denied the equal protection of the laws secured by the Constitution.”

Is the Bush administration and Northcom waiting for such a scenario to unfold, an event that completely overwhelms state authorities, before unleashing the might of the U.S. Army against the American people?

The deployment of National Guard troops to aid law enforcement or for disaster relief purposes is legal under the authority of the governor of a state, but using active duty U.S. Army in law enforcement operations inside America absent the conditions described in the Insurrection Act is completely illegal.

With the promise of an “October surprise” on behalf of Bin Laden and Al-Qaeda being bandied about by the media and the potential for civil unrest should a complete collapse of the U.S. economy unfold, the presence of U.S. troops inside America, returning fresh from kicking down doors, arresting “insurgents” and taking them to internment camps in Iraq, should put Americans on alert and provoke urgent questions about the legality of U.S. Army units engaging in law enforcement operations against American citizens.)

RESUME COMMENTARY:

The financial spigot is being turned down tight by lending institutions and credit is becoming a feeble trickle as the banking institutions of America are “Hoarding Their Money, Their Cash” in a feverish Corporate Mattress Stuffing.

Bush in his latest “You, Yours, is endangered speech” declared that the “Average American” is safe and their pittance life savings and puny pensions are safe in the “untouchable hands” of The FDIC; oops…last night we discovered that, that is not exactly TRUE, but what’s new with Bush pronouncements. We all know when Bush is lying; his lips move and we hear words, of sorts.

Just read the next two paragraphs!

The primary steps -- purpose of the steps I have outlined tonight is to safeguard the financial security of American workers and families and small businesses. The federal government also continues to enforce laws and regulations protecting your money. The Treasury Department recently offered government insurance for money market mutual funds. And through the FDIC, every savings account, checking account, and certificate of deposit is insured by the federal government for up to $100,000. The FDIC has been in existence for 75 years, and no one has ever lost a penny on an insured deposit -- and this will not change.

“Federal regulators had been trying to broker a deal for Washington Mutual because a takeover by the F.D.I.C. would have dealt a crushing blow to the federal government’s deposit insurance fund. The fund, which stood at $45.2 billion at the end of June, has been severely depleted after suffering a loss from the sudden collapse of IndyMac Bank. Analysts say that a failure of Washington Mutual would have cost the fund as much as $30 billion or more.”

Americans, rightfully so do not want to shoulder the financial burden of solving the problems created by an incompetent Congress, the totally criminally corrupt corporations and financial institutions of this nation, and we should not have to.

Our voices are being heard and the total Washington confusion and desperation of this day is driving their “political panic”. The Paulsen Plan has some elements, though odious, that may have to be adopted as a matter of necessity. The Cantor Republican Plan has elements that are appealing and workable. There options that have not been even considered or discussed publicly that could be folded in a working economic recovery plan. No one party has all the answers and not all of the components of a comprehensive package have been explored.

Remember that the Roosevelt solution was a portfolio of components, not a simple one-step rush to justice, and be prepared to see this matter revisited and additional measured enacted as time moves on and the novelty and interrelationships of our horror house of financial dominos is unraveled.

There can be no heroes, no White Knights by political design in diverting disaster. The actions must be bipartisan; they must be acts of statesmanship not politics, and they must be foundationed on real regulation and stringent oversight. Wall Street and the major financial Institutions of this country have proven that cannot be allowed to “play corporate monopoly with our money”.

Click this link: http://video.ap.org/v/default.aspx?mk=en-ap&g=79bda51d-eeed-4750-ab2a-8f9a65d7df13&f=1225078&fg=email

Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators on Thursday night, in what is by far the largest bank failure in American history.

Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual, the nation’s largest savings and loan, to JPMorgan Chase for $1.9 billion, averting another potentially huge taxpayer bill for the rescue of a failing institution.

The move came as lawmakers reached a stalemate over the passage of a $700 billion bailout fund designed to help ailing banks, and removed one of America’s most troubled banks from the financial landscape.

Customers of WaMu, based in Seattle, are unlikely to be affected, although shareholders and some bondholders will be wiped out. WaMu account holders are guaranteed by the Federal Deposit Insurance Corporation up to $100,000, and additional deposits will be backed by JPMorgan Chase.

By taking on all of WaMu’s troubled mortgages and credit card loans, JPMorgan Chase will absorb at least $31 billion in losses that would normally have fallen to the F.D.I.C.

JPMorgan Chase, which acquired Bear Stearns only six months ago in another shotgun deal brokered by the government, is to take control Friday of all of WaMu’s deposits and bank branches, creating a nationwide retail franchise that rivals only Bank of America. But JPMorgan will also take on Washington Mutual’s big portfolio of troubled assets, and plans to shut down at least 10 percent of the combined company’s 5,400 branches in markets like New York and Chicago, where they compete. The bank also plans to raise an additional $8 billion by issuing common stock on Friday to pay for the deal.

But fears of the fallout from the government takeover of a big bank were balanced with the removal of one of the largest remaining clouds looming over the banking industry.

“This institution was a big question mark about the health of the deposit fund,” Sheila C. Bair, the chairwoman of the F.D.I.C., said on a conference call Thursday. “It was unique in its size and exposure to higher risk mortgages and the distressed housing market. This is the big one that everybody was worried about.” She said that the bank’s rapidly deteriorating condition prompted regulators to seize it Thursday, and not on a Friday as is typical for bank closures.

For weeks, the Federal Reserve and the Treasury Department were nervous about the fate of WaMu, among the worst-hit by the housing crisis, and pressed hard for the bank to sell itself. Washington Mutual publicly insisted that it could remain independent, but the giant thrift had quietly hired Goldman Sachs about two weeks ago to identify potential bidders. But nobody could make the numbers work and several deadlines passed without anyone submitting bid.

But as panic gripped financial markets last week after the collapse of Lehman Brothers, WaMu customers started withdrawing their deposits. The government then stepped up its efforts, at points going behind WaMu’s back to work privately with four potential bidders on a deal. On Wednesday afternoon, the government solicited formal written bids. On Thursday morning, regulators notified James Dimon, chairman and chief executive of JPMorgan Chase, that he was the likely winner.

“We are building a company,” Mr. Dimon said in a brief interview. “We are kind of lucky to have this opportunity to do this. We always had our eye on it.”

But the seizure and the deal with JPMorgan came as a shock to Washington Mutual’s board, which was kept completely in the dark: the company’s new chief executive, Alan H. Fishman, was in midair, flying from New York to Seattle at the time the deal was finally brokered, according to people briefed on the situation. Mr. Fishman, who has been on the job for less than three weeks, is eligible for $11.6 million in cash severance and will get to keep his $7.5 million signing bonus, according to an analysis by James F. Reda and Associates. WaMu was not immediately available for comment.

The government has dealt with troubled financial institutions differently. Lehman Brothers and Washington Mutual, which were less entangled with the rest of the financial system, were allowed to collapse. But the government took emergency measures to stabilize Goldman Sachs, Morgan Stanley and the American International Group, the insurance giant.

Federal regulators had been trying to broker a deal for Washington Mutual because a takeover by the F.D.I.C. would have dealt a crushing blow to the federal government’s deposit insurance fund. The fund, which stood at $45.2 billion at the end of June, has been severely depleted after suffering a loss from the sudden collapse of IndyMac Bank. Analysts say that a failure of Washington Mutual would have cost the fund as much as $30 billion or more.

The deal will end WaMu’s 119-year run as an independent company and give JPMorgan Chase branches in California and other markets where it does not have a big presence.

Until recently, Washington Mutual was one of Wall Street’s strongest performers. It reaped big profits quarter after quarter as its then chief executive, Kerry K. Killinger, enlarged its presence by buying banks on both coasts and ramping up mortgage lending.

His goal was to transform what was once a sleepy Seattle thrift into the “Wal-Mart of Banking,” which would cater to lower- and middle-class consumers that other banks deemed too risky. It offered complex mortgages and credit cards whose terms made it easy for the least creditworthy borrowers to get financing, a strategy the bank extended in big cities, including Chicago, New York and Los Angeles. With this grand plan, Mr. Killinger built Washington Mutual into the sixth-largest bank in the United States.

But underneath the hood, the bank’s machinery was failing.

Then the housing market began to crumble. Like so many other financial institutions, the bank tried to hedge its mortgage bets — but did so poorly. It retrenched on its branch-building ambitions. But none of that was enough to deflate ballooning losses on mortgage loans, nor defuse ticking time bombs like interest-only and pay-option amortization products that had reeled in bottom-grade borrowers.

With rising mortgage payments and higher gas and food bills, WaMu’s losses in its big credit card loan portfolio also surged.

By then, however, WaMu’s troubles had set off alarm bells on Wall Street, which ground its share price down daily.

With options narrowing, WaMu frantically reached out to several banks and big private equity firms, including the Carlyle Group and the Blackstone Group.

In March, JPMorgan Chase saw an opportunity and urged WaMu in a letter to consider a quick deal. On the same weekend that Mr. Dimon negotiated his daring takeover of Bear Stearns, he secretly dispatched members of his team to Seattle to meet with WaMu executives. When JPMorgan Chase offered WaMu $8 a share, largely in stock. But Mr. Killinger balked at the deal.

In April, David Bonderman, a founder of the TPG private equity firm, and a group of institutional investors agreed to infuse $7 billion of capital into the bank. Mr. Killinger kept his job, and Mr. Bonderman, who had served as a WaMu director from 1997 to 2002, returned with a board seat and 176 million WaMu shares priced at about $8.75 each — steep discount of more than 25 percent to that day’s share price.

While the deal was sweet for Mr. Bonderman, it eroded the value for existing shareholders, enraging them. They moved on June 2 to strip Mr. Killinger of his chairmanship. Mr. Bonderman, meanwhile, watched his golden bet turn to dross. In a statement Thursday, TPG said: “Obviously, we are dissatisfied with the loss to our partners from our investment in Washington Mutual.”

A CRISIS IN FINANCE

TALKS IMPLODE DURING A DAY OF CHAOS; FATE OF BAILOUT PLAN REMAINS UNRESOLVED

High stakes talks over $700 billion rescue end in chaos, one day after President Bush warns 'entire economy at risk.'

NEW YORK (CNNMoney.com) -- One day after President Bush said the nation's economy is at grave risk, the high-stakes negotiations over the proposed $700 billion bailout of the financial system ended in chaos on Thursday.

Lawmakers bickered over competing counterproposals and hours of meetings between key lawmakers broke down without any progress late into the evening.

A meeting at the White House between President Bush, congressional leaders and the presidential candidates was meant to speed approval of an agreement. Instead, the session revealed deep divisions between Democrats and House Republicans.

As a result, House and Senate leaders and Treasury Secretary Henry Paulson rushed to Capitol Hill at 8 p.m. to try to hash out a deal.

But shortly after 10 p.m., Rep. Barney Frank, D-Mass., the lead House Democrat on the issue who had been in close talks with Paulson for days, accused Republicans of refusing to negotiate.

"At this point, we have absolutely no participation or cooperation from House Republicans," Frank said.

The next step was not clear late Thursday night. One thing seems certain: Lawmakers won't recess for the year on Friday, as originally planned. Instead, if they can't reach a deal in the next 24 hours, they're likely to work through the weekend.

The page many thought they were on!

Leading Democrats said they were presented for the first time with the House Republican principles at the White House meeting.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., said the White House meeting was thrown off course when participants were blindsided by a new "core agreement" that emerged in the meeting that not many had seen before.

Earlier in the day, congressional negotiators said they had agreed to a set of principles on revisions to the rescue plan, which calls for the Treasury Department to buy up bad mortgage securities from banks in an effort to get them to lend again.

The proposal, as amended by leaders in both chambers, will help homeowners, curb executive pay packages at participating firms and provide oversight of Treasury's actions, Dodd said in a lunchtime address.

"We've reached a fundamental agreement on a set of principles, one, for taxpayers, which is tremendously important," he said. "We're very confident we can act expeditiously."

The principles the Democrats said had been agreed upon call for Congress to make $250 billion available immediately with $100 billion available, if needed, without requiring additional congressional approval, said two senior Democratic aides familiar with the negotiations. The second half of $350 billion would then become available by a special approval of Congress.

On executive compensation, the draft would require limits on compensation for executives of any company participating in the bailout. These caps would apply for as long as the company is in the program. This would include some language to limit excess "golden parachutes."

Treasury will also get an equity stake in the companies being helped by the bailout, though what type remains to be worked out.

Still to be worked out is whether to allow bankruptcy judges to modify mortgage terms, a provision backed by many Democrats and community activists but opposed by Republicans and the banking industry.

The bankruptcy provision is not the only sticking point, however. House Republicans are not on board, according to Minority Leader Rep. John Boehner, R-Ohio.

"House Republicans have not agreed to any plan at this point," Boehner said.

The plan also calls for: participating firms to disclose the value of the mortgage assets on their books, ending Fannie Mae and Freddie Mac's securitization of "unsound mortgages," reviewing the performance of the credit rating agencies and having the Securities and Exchange Commission audit failed companies to ensure their financial standing was accurately portrayed.

House Republicans also want to create a panel to make recommendations for reforming the financial industry by year's end.

Meanwhile, the ranking Republican on the Senate Banking Committee has another idea. Sen. Richard Shelby, R-Ala., said he doesn't support the Treasury plan until there is serious consideration of alternatives. He proposed Thursday adding funds to the Federal Reserve and Treasury to allow them to lend more to financial institutions.

Before the afternoon meeting, Bush said he expects a deal "very shortly."

After, a counselor to the president said "we're getting closer. There's some more that has to be done. It's going to be a consensus plan at the end of the day."

"Both sides are going to have to work hard to get to an agreement," presidential counselor Ed Gillespie said on CNN.

Administration officials have spent countless hours this week behind closed doors with and in public hearings before Congress. Lawmakers were hoping to have a deal agreeable to both parties hammered out before Thursday's meeting at the White House.

On Wednesday night, Bush took the nation's airwaves in a prime-time address in which he laid out a looming economic disaster.

"The government's top economic experts warn that, without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold," Bush said. "More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically."

It’s not easy to run an economy without a functioning financial system.

This country barely has one, and it is far from clear that will change even if the White House and Congress can reach an agreement on a bailout plan.

Even as the stock market was rallying on signs that bailout talks were progressing early Thursday, the credit markets showed signs of additional distress, distress that could deepen if the stalemate continues.

In concept, the plan put forth by Henry Paulson, the Treasury secretary, is really quite simple: Give the banks lots and lots of money. Once they have money — and are no longer stuck with many of those strange assets left over from the discredited financial system that imploded — people will have confidence in them.

There is no guarantee that confidence will emerge. But even if it did, the second assumption is even less certain to prove correct. If the banks have all that money, will they be willing to go back to lending, or will they continue to show the caution that has been the hallmark of the last year? Is a bank’s capital something to be conserved, or put at risk?

One lesson of the last 18 months is that when the government promises aid to a financial institution, if needed, the pledge does more harm than good. What the public hears is that an institution needs help, which means it is not a good place to put your own money. Speculators sell the stock, and they buy credit-default swaps.

When the price of the swaps goes up, others get worried.

Mr. Paulson decided that problem could be solved by funneling hundreds of billions of dollars to banks, whether they needed it or not.

Since his criteria for getting the money did not involve any actual need for it, the hope was that none of us would think badly of the banks that get the cash.

The concessions demanded by legislators could change that in important ways, giving healthy banks possible reasons to turn down the plan — and perhaps raising suspicions about the others.

It has been a year since Mr. Paulson started trying to find a way out of this mess. The latest plan is not all that different from his first idea, announced last October. Then he wanted the banks to set up what became known as a super-SIV to buy dicey assets from the regular SIVs, or structured investment vehicles.

The fear then was that the banks would have to put that junk back on their own balance sheets because those who had financed the SIVs wanted their money back. The assumption was that the banks had plenty of capital, and that getting beyond the problem would end the crisis.

It turned out the banks did not have plenty of capital and the problem was much larger. That idea died. This plan is a super-SIV on steroids, with the cash to be put up by the government.

Not that the Paulson plan puts it so bluntly. Instead, it returns to the wondrous fiction that penetrated the super-SIV debate, that assets are worth what someone says they are worth, rather than what someone will actually pay. The assumption underlying that proposal was that the assets were really O.K. — they had AAA ratings, did they not? — but that their market value had temporarily fallen because of unreasoning panic among investors.

Financial companies have been saying for months now that market prices for mortgage securities were unreasonably low, although none of them seemed eager to buy at those prices. Among the companies that most vigorously pushed the idea were the American International Group and Freddie Mac, which could be a sign that such protestations served to scare rather than reassure.

The Fed and the Treasury think that the prices have fallen too far. Contrary to what President Bush said in his speech Wednesday night, the plan proposed by his administration did not call for buying such securities at “current low prices.” As Ben Bernanke, the Fed chairman, explained to legislators this week, the price the government would pay was to be the “hold-to-maturity price” of these securities, not the “fire-sale price” they would now fetch in an open market.

And how would that price be determined? Mr. Bernanke thought “auctions and other mechanisms could be devised that would give the market good information on what the hold-to-maturity price was for a large class of mortgage-related assets.” That strikes me as dubious at best. Auctions of disparate securities with one eager buyer and sellers of varying desperation may show something, but it is unlikely to be the “hold-to-maturity value.”

To estimate such a price, you need to make assumptions on how many defaults are likely, and how severe the losses will be, for each group of mortgages that was securitized. The correct answer will depend in large part on how long house prices fall, and how severe the recession is. If you think you know all that, then you can make a good estimate of value.

The nature of securitizations is that the losses arrive in lumps. A given security might meet all its payments if the mortgage pool backing it suffered losses of 5 percent, and be wiped out if the losses reached 6 percent. Change your assumption a little, and the value may change a lot.

But coming up with any kind of fair value was not the real objective. Instead, the goal was to recapitalize the banking system by placing a floor under the prices of securities that never should have been issued.

It appeared on Thursday night that any deal between the Bush administration and Congress would include requiring the government to get equity stakes in banks that take the money, and forcing banks to follow standards set by the Treasury Department to limit excessive or inappropriate executive pay.

Those provisions were needed to assuage public resentment at bailing out Wall Street, but if they are not just window dressing they could reduce the possibility of getting every bank to take the money, unless the government is prepared to pay a lot more than the real value of the securities. Healthy banks may be unwilling to surrender equity, or agree to limits on executive pay.

If that happened, this bailout plan, like those before it, could be perverse even if it is adopted. If your institution takes the help, that means it needed it. Customers may flee.

Mr. Bernanke is right to say that “if the credit system isn’t working, then firms can’t finance themselves, people cannot borrow to buy a car, to send a student to college, to buy a house.” It is possible this plan, if successful and widely used, would recapitalize a lot of banks, enabling them to increase lending. But there is no assurance they would.

Unfortunately, many banks have problems that have nothing to do with mortgages. A report by David Keisman of Moody’s warns that in the crazy credit boom that ended last year, many bank loans to overleveraged companies lacked normal protections for the lenders. Recoveries on defaulted loans, he says, “could be far lower than historic averages.”

That could hurt the lenders, and the holders of collateralized loan obligations. It could also hurt the companies that wrote credit-default swaps that promised to pay if loans defaulted. Fears of such developments could encourage banks to hold on to the cash they get from Uncle Sam.

There is nothing to stop the government from buying up corporate loans and securities, as it proposes to do with mortgages and mortgage securities, but at some point you start to wonder whether you really want the government deciding whether to grant concessions to individual borrowers, whether they are homeowners or companies. Is it possible that contributors to the right politicians could be favored? Is it possible that someone will at least suspect that happened?

Members of Congress have been pushing to assure that some mortgages taken over by the government will be modified to help homeowners. That could help the economy in some areas, but it also could increase the cost to the government.

In a triumph of optimism, the negotiators were reported to be talking about what would be done with the government’s profits — assuming there are some. Most profits would go to pay down the national debt, with the rest going to help the housing market.

Until now, the excesses of the last credit boom have defied all efforts to stabilize a crippled financial system. This plan, if finally approved, will be Mr. Paulson’s legacy. If it does not work, a new administration will have to think of something else.

The Bush government's big rescue plan for the struggling US financial sector has run into rough weather, as Republican and Democratic lawmakers failed to reach an agreement during an emergency White House meeting called on Thursday. As a result, there are now concerns over whether President Bush will be able to garner the much-needed bipartisan support in the Congress for the rescue package. Markets in Asia and Europe fell while US stock futures too slid amid worries over the fate of the proposed US$700bn bailout of the financial system.

The plan appeared to be gaining momentum throughout much of Thursday as key members of Congress sent out positive signals. But then a contentious White House meeting turned into an acrimonious verbal clash, with lawmakers bickering over competing counterproposals. The meeting between President Bush, congressional leaders and the presidential candidates was meant to hasten approval of the bailout plan. Instead, the session revealed deep divisions between Democrats and Republicans. No progress was reported till late into the evening.

House and Senate leaders and Treasury Secretary Henry Paulson rushed to Capitol Hill to try and thrash out a deal. But, Rep. Barney Frank, D-Mass., the lead Democrat on the issue who had been in close talks with Paulson for days, accused Republicans of putting roadblocks in negotiations. "At this point, we have absolutely no participation or cooperation from Republicans," Frank said. The impasse led Democrats to insist that they will not bring Paulson's plan to a vote without Republican support.

"If Republicans continue to reject the President's approach, there will be no bill," warned Frank, the chairman of the House Financial Services Committee. Frank has been negotiating non-stop since Sept. 18, when Paulson announced his US $700bn plan to rescue the sick US financial system. Separately, Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, said Bush must bring House Republicans back to the table. Meetings would resume on Friday and a deal could still be reached, he said. "We're getting there," he said.

Dodd said a deal could take beyond Friday to reach and took a firm swipe at McCain. He and other Democrats said that the White House meeting was trying to help the McCain in the presidential race. They said McCain had given his tacit approval to undercut the Paulson plan. The whole meeting "looked like a rescue plan for John McCain," said Dodd. Democrats will balk at the Paulson plan if they know that Republicans aren't participating, he warned. "Let this be a clear warning: The president and his party have got to decide whether they want to be a part of this," he said.

Earlier in the day, congressional negotiators said they had agreed on a plan to revise the rescue plan, which calls for the Treasury Department to buy up bad mortgage securities from banks in an effort to get them to lend again. The altered rescue plan will help homeowners, curb executive pay packages at participating firms and provide oversight of Treasury's actions, Dodd said. "We've reached a fundamental agreement on a set of principles, one, for taxpayers, which is tremendously important," he said.

Meanwhile, more than 150 prominent economists, including three Nobel Prize winners, urged Congress not to rush on passing the US $700bn rescue plan until it can be studied more closely.

In a Sept. 24 letter to congressional leaders, 166 academic economists said they oppose Paulson's plan because it was a subsidy for business, it was ambiguous and it may have adverse market consequences in the long term. They also expressed concern at the haste of lawmakers and the Bush administration to pass the legislation.

One thing seems clear though: US lawmakers won't break for the year on Friday, as originally planned. Instead, if they can not reach a deal in the next 24 hours, they are likely to work through the weekend. The White House, Federal Reserve Chairman Ben Bernanke and Paulson have repeatedly made the case for speedy enactment of the plan, warning of grave danger if it is not approved. But, key members of Congress have been concerned about pushing through the plan that puts taxpayers at risk and does too little to address the root causes of the problem.

A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar?

It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent.

But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

“If I go into a bank,” said Bo Lundgren, who was Sweden’s finance minister at the time, “I’d rather get equity so that there is some upside for the taxpayer.”

Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today’s dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States.

But the final cost to Sweden ended up being less than 2 percent of its G.D.P. Some officials say they believe it was closer to zero, depending on how certain rates of return are calculated.

The tumultuous events of the last few weeks have produced a lot of tight-lipped nods in Stockholm. Mr. Lundgren even made the rounds in New York in early September, explaining what the country did in the early 1990s.

A few American commentators have proposed that the United States government extract equity from banks as a price for their rescue. But it does not seem to be under serious consideration yet in the Bush administration or Congress.

The reason is not quite clear. The government has already swapped its sovereign guarantee for equity in Fannie Mae and Freddie Mac, the mortgage finance institutions, and the American International Group, the global insurance giant.

Putting taxpayers on the hook without anything in return could be a mistake, said Urban Backstrom, a senior Swedish finance ministry official at the time. “The public will not support a plan if you leave the former shareholders with anything,” he said.

The Swedish crisis had strikingly similar origins to the American one, and its neighbors, Norway and Finland, were hobbled to the point of needing a government bailout to escape the morass as well.

Financial deregulation in the 1980s fed a frenzy of real estate lending by Sweden’s banks, which did not worry enough about whether the value of their collateral might evaporate in tougher times.

Property prices imploded. The bubble deflated fast in 1991 and 1992. A vain effort to defend Sweden’s currency, the krona, caused overnight interest rates to spike at one point to 500 percent. The Swedish economy contracted for two consecutive years after a long expansion, and unemployment, at 3 percent in 1990, quadrupled in three years.

After a series of bank failures and ad hoc solutions, the moment of truth arrived in September 1992, when the government of Prime Minister Carl Bildt decided it was time to clear the decks.

Standing shoulder-to-shoulder with the opposition center-left, Mr. Bildt’s conservative government announced that the Swedish state would guarantee all bank deposits and creditors of the nation’s 114 banks. Sweden formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral.

Sweden told its banks to write down their losses promptly before coming to the state for recapitalization. Facing its own problem later in the decade, Japan made the mistake of dragging this process out, delaying a solution for years.

Then came the imperative to bleed shareholders first. Mr. Lundgren recalls a conversation with Peter Wallenberg, at the time chairman of SEB, Sweden’s largest bank. Mr. Wallenberg, the scion of the country’s most famous family and steward of large chunks of its economy, heard that there would be no sacred cows.

The Wallenbergs turned around and arranged a recapitalization on their own, obviating the need for a bailout. SEB turned a profit the following year, 1993.

“For every krona we put into the bank, we wanted the same influence,” Mr. Lundgren said. “That ensured that we did not have to go into certain banks at all.”

More money may yet come into official coffers. The government still owns 19.9 percent of Nordea, a Stockholm bank that was fully nationalized and is now a highly regarded giant in Scandinavia and the Baltic Sea region.

The politics of Sweden’s crisis management were similarly tough-minded, though much quieter.

Soon after the plan was announced, the Swedish government found that international confidence returned more quickly than expected, easing pressure on its currency and bringing money back into the country. The center-left opposition, while wary that the government might yet let the banks off the hook, made its points about penalizing shareholders privately.

“The only thing that held back an avalanche was the hope that the system was holding,” said Leif Pagrotzky, a senior member of the opposition at the time. “In public we stuck together 100 percent, but we fought behind the scenes.”

What would you pay, sight unseen, for a house that nobody wants, on a hard-luck street where no houses are selling?

That question is easy compared to the one confronting the Treasury Department as Washington works toward a vast bailout of financial institutions. Treasury Secretary Henry M. Paulson Jr. is proposing to spend up to $700 billion to buy troubled investments that even Wall Street is struggling to put a price on.

A big concern in Washington — and among many ordinary Americans — is that the difficulty in valuing these assets could result in the government’s buying them for more than they will ever be worth, a step that would benefit financial institutions at taxpayers’ expense.

Anyone who has tried to buy or sell a house when the market is falling, as it is now, knows how difficult it can be to agree on a price. But valuing the securities that the Treasury aims to buy will be far more difficult. Each one of these investments is tied to thousands of individual mortgages, and many of those loans are going bad as the housing market worsens.

“The reality is that we are not going to know what the right price is for years,” said Andrew Feltus, a bond portfolio manager at Pioneer Investments, a mutual fund firm based in Boston. “It might be 20 cents on the dollar or 60 cents on the dollar, but we won’t know for years.”

While prices of most stocks are no mystery — they flicker across PCs and televisions all day — the troubled investments are not traded on any exchange. The market for them is opaque: traders do business over the telephone, and days can go by without a single trade.

Not only that, many of these instruments are extremely complex. Consider the Bear Stearns Alt-A Trust 2006-7, a $1.3 billion drop in the sea of risky loans. Here’s how it worked:

As the credit bubble grew in 2006, Bear Stearns, then one of the leading mortgage traders on Wall Street, bought 2,871 mortgages from lenders like the Countrywide Financial Corporation.

The mortgages, with an average size of about $450,000, were Alt-A loans — the kind often referred to as liar loans, because lenders made them without the usual documentation to verify borrowers’ incomes or savings. Nearly 60 percent of the loans were made in California, Florida and Arizona, where home prices rose — and subsequently fell — faster than almost anywhere else in the country.

Bear Stearns bundled the loans into 37 different kinds of bonds, ranked by varying levels of risk, for sale to investment banks, hedge funds and insurance companies.

If any of the mortgages went bad — and, it turned out, many did — the bonds at the bottom of the pecking order would suffer losses first, followed by the next lowest, and so on up the chain. By one measure, the Bear Stearns Alt-A Trust 2006-7 has performed well: It has suffered losses of about 1.6 percent. Of those loans, 778 have been paid off or moved through the foreclosure process.

But by many other measures, it’s a toxic portfolio. Of the 2,093 loans that remain, 23 percent are delinquent or in foreclosure, according to Bloomberg News data. Initially rated triple-A, the most senior of the securities were downgraded to near junk bond status last week. Valuing mortgage bonds, even the safest variety, requires guesstimates: How many homeowners will fall behind on their mortgages? If the bank forecloses, what will the homes sell for? Investments like the Bear Stearns securities are almost certain to lose value as long as home prices keep falling.

“Under the current circumstances it’s likely that you are going to take a loss on these loans,” said Chandrajit Bhattacharya, a mortgage strategist at Credit Suisse, the investment bank.

The Bear Stearns bonds are just one example of the kind of assets the government could buy, and they are by no means the most complicated of the lot. Wall Street took bonds like those of Bear Stearns and bundled and rebundled them into even trickier investments known as collateralized debt obligations, or C.D.O.’s

“No two pieces of paper are the same,” said Mr. Feltus of Pioneer Investments.

On Wall Street, many of these C.D.O.’s have been selling for pennies on the dollar, if they are selling at all. In July, Merrill Lynch, struggling to bolster its finances, sold $31 billion of tricky mortgage-linked investments for 22 cents on the dollar. Last November, Citadel, a large hedge fund in Chicago, bought $3 billion of mortgage securities and other investments for 27 cents on the dollar.

But Citigroup, the financial giant, values similar investments on its books at 61 cents on the dollar. Citigroup says its C.D.O.’s are relatively high quality because they were created before lending standards weakened in 2006.

A big challenge for Treasury officials will be deciding whether to buy the troubled investments near the values at which the banks hold them on their books. That would help minimize losses for financial institutions. Driving a hard bargain, however, would protect taxpayers.

“Many are tempted by a strategy of trying to do both things at once,” said Lawrence H. Summers, a former Treasury secretary in the Clinton administration. As a hypothetical example, Mr. Summers suggested that an institution could have securities on its books at $60, but the current market price might only be $30. In that case, the government might be tempted to come in at about $55.

Many financial institutions are so weak that they must sell their troubled assets at prices near the value on their books, Carlos Mendez, a senior managing director at ICP Capital, an investment firm that specializes in credit markets. Anything less would eat into their capital.

“Depending on your perspective on the economy, foreclosure rates and home prices, the market may eventually reflect that price. But most buyers are not willing to make that bet right now,” he said. “And that’s why we have these low prices.”

Ben S. Bernanke, the chairman of the Federal Reserve, told Congress on Tuesday that the government should avoid paying a fire-sale price, and pay what he called the “hold-to-maturity price,” or the price that investors would bid if they expected to keep the bond till it was paid off.

The government would buy the troubled investments with the intention of eventually selling them back to the market when prices recover.

The Treasury has suggested it might conduct reverse auctions to determine the price for securities that are not trading in the market.

Unlike in a traditional auction in which would-be buyers submit bids to the seller, in a reverse auction the buyer solicits bids from would-be sellers. Often, the buyer agrees to pay the second-highest bid submitted to encourage sellers to compete by lowering their bids for all the assets submitted. The buyer often also sets a reserve price and refuses to pay any more than that price.

But Mr. Paulson told Congress on Tuesday that the government would use many other means in addition to auctions, suggesting that it would exercise wide discretion over the final prices to be paid.

Financial institutions will have an incentive to sell their worst assets to the government, a risk that the Treasury will have to guard against, said Robert G. Hansen, senior associate dean at the Tuck School of Business at Dartmouth College.

“I am worried that the people who are going to offer the securities to the government will be the ones that have the absolute worst toxic waste,” Professor Hansen said. Even so, he added, the government could actually make a profit on its purchases — provided the Treasury buys at the right prices. Richard C. Breeden, a former chairman of the Securities and Exchange Commission, said the auctions could thaw parts of the markets that have been frozen since late last year.

“One of the problems that many institutions are having is finding any bid for some of these assets, even though they are not without value,” said Mr. Breeden, who is chairman and chief executive of Breeden Capital Management, an investment firm in Greenwich, Conn.

“What are these assets worth?” asked Mr. Breeden. “Sometimes, because of fear or extreme uncertainty in the markets, you get in a situation in which there are no bids at all, or at least no realistic bids.”

NEWPORT BEACH, Calif. — One of the chief concerns about the Treasury Department’s $700 billion bailout plan is that the same Wall Street firms that helped create the crisis could make a killing cleaning it up.

William H. Gross, the manager of the country’s largest bond mutual fund, has a solution: he is offering to sort through the toxic assets — free.

“We have a large and brilliant staff that can analyze and has analyzed subprime mortgages that can help the Treasury out,” Mr. Gross, the co-chief investment officer for the Pacific Investment Management Company, said in an interview at the company’s headquarters here.

He added, “And I’d even be willing to say that if the Treasury wanted to use our help, it would come, you know, free and clear.”

Mr. Gross explained his offer as a philanthropic one. With Pimco’s $830 billion under management, “we make fees aplenty,” he said. That could be considered an understatement. Pimco is a behemoth in credit markets, and Mr. Gross talks about them with a confidence that reflects his ability to maneuver in them.

But maneuvering is becoming a lot harder these days. After breathing an initial sigh of relief when the Treasury plan was first announced, credit markets are again showing signs of stress.

Mr. Gross pointed it out on Tuesday morning, standing on Pimco’s trading floor as Henry M. Paulson Jr., the Treasury secretary, and Ben S. Bernanke, the Federal Reserve chairman, testified before a Senate committee.

“Today’s the worst day yet and nobody knows it,” he said. “Everybody is squirreling away cash. Even the big banks are refusing to lend money.”

Bid-ask spreads on bonds in almost every sector of the debt markets stretched to a full point or more. “It’s not a pretty situation today, much worse than last week,” Mr. Gross said.

“Those who just look at the stock market wouldn’t know it,” he added, because the Dow Jones industrial average was down only 126 points at the time. “But the credit markets are doing a pretty good job of freezing up.”

Despite his proposal to offer his talents, gratis, some investment managers say the government should be wary of giving authority for the auction of mortgage securities to anyone in the private sector, particularly someone with as dominant a position in the bond market as Mr. Gross.

Luis Maizel, a senior managing director of LM Capital Group in San Diego, said the government should instead turn to someone like a former official of the Federal Home Loan Bank Board, which is now defunct, or the Federal Reserve.

“They should start with somebody who doesn’t have a conflict,” Mr. Maizel said. “Bill Gross is a good friend of mine, but if you put this in Bill’s hands, Pimco is going to come out great and I don’t know that the government will.”

Mr. Gross says that all he wants in return for helping the Treasury Department is for Pimco “to be recognized for the way we’ve seen this crisis coming, and for the way we’ve talked about what’s required.”

For more than a year, Mr. Gross, whose investment expertise has earned him a net worth estimated at more than $1 billion, according to Forbes, has indeed played the role of the financial markets’ Cassandra. Beginning in July 2007, he warned that the subprime mortgage crisis would become far worse before it would improve.

Other sectors of the financial markets, he predicted, also could seize up if the Federal Reserve and the Treasury did not do something to help keep the markets liquid.

But Mr. Gross and Pimco also attracted criticism when it became clear that the Pimco Total Return fund earned more than $1.7 billion on the day the federal government bailed out Fannie Mae and Freddie Mac.

Mr. Gross had been advocating such a move for more than a year, at the same time that he was moving more than 60 percent of his fund’s assets into government-agency bonds. The shift in investment strategy began in earnest shortly after Pimco hired Alan Greenspan, the former Federal Reserve chairman, as an adviser last year.

Mr. Gross said there was nothing wrong with that advocacy because Pimco had no official role in formulating the plan to rescue Fannie Mae and Freddie Mac.

“We had a role on CNBC,” he said, “in that every time we were asked, or I guess every time that The New York Times would call, they would say, ‘What are you doing?’ and we would say: ‘Well, we want safe, agency-guaranteed mortgages. We don’t want to take a lot of risks in subprime space.’ ”

With the current liquidity crisis touching virtually every sector, any firm in a position to advise the Treasury on its rescue plan would have potential conflicts of interest, Mr. Gross said. “There’s fewer of them here than anywhere else,” he added. “Simply because we saw the crisis coming and we don’t have much of this paper.”

The calm of the Pimco trading floor is perhaps a reflection of that reality. Even in the midst of the Wall Street tumult, it is less cacophonous pit than library, the low murmur of conversation among portfolio managers drowned out only by the clacking keyboards.

Mr. Gross, a lanky 64-year-old who practices yoga and sometimes speaks so softly that colleagues lean toward him, drifted around the room on Tuesday, an unknotted pale blue Hermès tie draped around his neck, his gray and brown hair extending down over his ears, reminiscent more of the 1970s than today.

Pimco’s headquarters sit on a bluff overlooking the Pacific Ocean. On a clear day, the view extends westward beyond Catalina Island, which sparkles like a jewel in the midday sun.

The windows on the Pimco trading floor, where Mr. Gross spends most of his time, however, face in the opposite direction — toward Wall Street and Washington, two arenas where Mr. Gross and his firm carry outsize influence.

Mr. Gross, who talks regularly with Mr. Paulson, believes the bailout plan should grant broader relief for homeowners and others weighed down by unmanageable debt. He says foreign banks should be allowed to take part in the program, but he argues against any measures that would try to restrict executive compensation — a move that Mr. Paulson tentatively backed Wednesday.

“I don’t even know if it’s legal,” Mr. Gross said of attempts to limit executive pay. “And so I think that complicates the situation. That’s not to defend those that are making big checks, but I don’t think it should be attached to this.”

Mr. Gross is also skeptical of proposals to have the Treasury take ownership stakes in banks that sell troubled assets to the government.

Buying a pool of subprime mortgages is not like buying part of a company, he said. The Treasury would own something — the mortgages themselves, which, if it pays the right amount for those loans, could earn it a yearly return of 12 to 13 percent when they are resolved.

“All the capital gains will accrue to the Treasury,” he said. “There’s tons of equity here. It’s just that it’s very difficult for American taxpayers to understand.”

The key, of course, is price, which is where an adviser to the Treasury would come in. Mr. Gross says much of the opposition to the plan stems from a misunderstanding that the Treasury would buy troubled mortgage bonds at face value.

On the contrary, Mr. Gross said, he would advise the Treasury to pay closer to 60 or 65 cents on the dollar for the mortgage bonds.

“If the price is right, the Treasury’s going to make money,” Mr. Gross said. “They made money on Chrysler. They can make money on this,” he said, referring to the federal bailout of the carmaker in 1979 and 1980.

Still, when asked how he saw the broader economy here and abroad over the next year, Mr. Gross responded simply, “Not pretty.”

“There will definitely be a prolonged period of either slow growth or recession for 12 to 18 to 24 months,” he said. “We’re not going to get out of this easily or scot-free. It’s just gone too far to now turn around quickly and to move into a positive growth mode.”

In the meantime, a surge in regulation of the financial sector will be unleashed, probably an inevitable result of the problems and rescues of recent months.

“Twelve to 24 months down the road, all of these high-flying investment banks and banks will be reregulated and downsized,” Mr. Gross said. “They won’t become arms of the government, but they will be supervised and held on a tight leash.”

The greater regulation should draw investors back to the market and away from what seems to be their current financial strategy — stuffing their cash in mattresses.

Even Mr. Gross admits that he has been, at times, reluctant to commit.

“We were offered this morning a six-month sizable piece of Morgan Stanley,” he said on Tuesday. “Here’s the surviving investment bank that just last night got equitized or bailed out by a Japanese bank. We were offered a sizable piece of a six-month Morgan Stanley obligation at a yield of 25 percent, O.K.?”

Pimco did not buy the bonds, “because we thought we could get it even cheaper,” Mr. Gross said, adding that thinking of that kind was at the heart of today’s market paralysis.

“That’s where the fear builds in and makes for totally illiquid markets,” he said. “Where no one trusts anybody; no one trusts any price.”

WASHINGTON — Americans’ anger is in full bloom, jumping off the screen in capital letters and exclamation points, in the e-mail in-boxes of elected representatives in the nation’s capital.

“I am hoping Congress can find the backbone to stand on their feet and not their knees before BIG BUSINESS,” one correspondent wrote to Representative Jim McDermott of Washington.

“I’d rather leave a better world to my children — NOT A BANKRUPT NATION. Whew! Pardon my shouting,” wrote another.

Mr. McDermott is a liberal Democrat, but his e-mail messages look a lot like the ones that Representative Candice S. Miller, a conservative Republican from Michigan, is receiving. “NO BAILOUT, I am a registered republican,” one constituent wrote. “I will vote and campaign hard against you if we have to subsidize the very people that have sold out MY COUNTRY.”

The backlash, in phone calls as well as e-mail messages, is putting lawmakers in a quandary as they weigh what many regard as the most consequential decision of their careers: whether to agree to President Bush’s request to spend an estimated $700 billion in taxpayer money to rescue the financial services system.

Around the country, Republican and Democratic voters are rising up in outright opposition to the White House plan or, at the very least, to express concern that it is being pushed through Congress in haste.

Lawmakers, in turn, are agonizing over what to do. Mrs. Miller said she had been “trying to be very deliberative about it,” listening to administration officials like Treasury Secretary Henry M. Paulson Jr., consulting with bankers from her district and independent experts. She sounded torn Wednesday, saying she was looking for guidance from Republican leaders and hoping they would come together with their Democratic counterparts on a bipartisan plan.

“I would say it’s the most concerned I’ve been since I’ve been in Congress,” said the congresswoman, a former Michigan secretary of state who won her House seat in 2002. “I appreciate all of the input that I’m getting from my constituents, but I’m just not reacting to that — I can’t until I understand it better and feel comfortable with my vote. And I’m not sure how I’m going to be voting yet.”

Meanwhile, the complaints keep coming, and several Congressional offices agreed to share them with reporters, though only on condition that the senders’ names not be published, for privacy reasons.

Senator Barbara Boxer, Democrat of California, has received nearly 17,000 e-mail messages, nearly all opposed to the bailout, her office said. More than 2,000 constituents called Ms. Boxer’s California office on Tuesday alone; just 40 favored the bailout. Her Washington office received 918 calls. Just one supported the rescue plan.

Senator Sherrod Brown, Democrat of Ohio, said he had been getting 2,000 e-mail messages and telephone calls a day, roughly 95 percent opposed. When Senator Bernard Sanders, the Vermont independent who votes with Democrats, posted a petition on his Web site asking Mr. Paulson to require that taxpayers receive an equity stake in the bailed-out companies, more than 20,000 people signed.

“We certainly have never brought in 20,000 names in a day and a half,” Mr. Sanders said, sounding astonished. “For us, that’s off the wall.”

It is much the same on the Republican side. Aides to Senator Jim Bunning, a Kentucky Republican who has called the bailout plan “un-American,” said the senator had received more constituent reaction to the bailout plan than to any issue since the immigration debate.

Representative Ray LaHood, Republican of Illinois, said he had not seen such an outpouring since President Bill Clinton’s impeachment trial in 1999.

Constituent communications, of course, are no shock to lawmakers, especially since the age of e-mail messages and automated “robo-calls” make it possible for voters to vent en masse. But members of Congress say reaction to the bailout does not appear orchestrated or coordinated, but rather individual expressions that come from the grass roots and run across the philosophical spectrum.

War opponents, for instance, are telling lawmakers that they are tired of an administration that, in Mr. McDermott’s words, has “cried wolf” and played “the fear card” too many times by leading the nation into war in Iraq to find nonexistent weapons of mass destruction and curbing civil rights in the name of pursuing terrorists.

Others, invoking the Bush administration’s efforts to expand executive authority, are irate over the idea that one person — Mr. Paulson, and then his successor — would control so much taxpayer money. “So many people have said to me, ‘This is a democracy; this isn’t a dictatorship,’ ” Senator Kent Conrad, Democrat of North Dakota, said.

Fiscal conservatives, on the other hand, see the White House abandoning core principles, marching down a treacherous road toward government intervention in the markets.

“We are turning into a socialist country,” one voter warned an aide to Senator Pete V. Domenici, Republican of New Mexico. “Let the markets work.”

But in the end, from the right or the left, lawmakers say the message is the same: Slow down, catch your breath and do not make any rash decisions, no matter what the White House says.

“This is too serious a problem for the administration to expect us to just rubber-stamp a $700 billion proposal and rush to get out of town,” said Senator Susan Collins, Republican of Maine. “That’s something my constituents definitely won’t tolerate.”

WASHINGTON — The status of a rescue plan for the nation’s financial system was in doubt on Thursday, at least for the moment, as lawmakers emerged from a meeting with President Bush to say that negotiations had a ways to go.

The Treasury secretary Henry M. Paulson Jr. quickly returned to Capitol Hill to try to revive the proposal.

One critical snag seems to be opposition to the $700 billion plan by conservative House Republicans.

“My hope is that we can get a deal,” said Senator Christopher J. Dodd, chairman of the Senate Banking Committee, hours after House and Senate negotiators had announced that an accord was at hand. President Bush had hoped that an agreement could be announced after the late-afternoon meeting.

Mr. Dodd, looking tired and annoyed, complained that the late complications were making the episode sound more like “a rescue plan for John McCain,” the Republican presidential candidate, than one for the financial system.

The senator was apparently alluding to a growing revolt by conservative Republicans, and the fact that Mr. McCain had not yet endorsed the plan, whose concept runs contrary to the policy positions he has taken.

Mr. McCain and his Democratic opponent, Senator Barack Obama, left the White House by a side entrance without commenting. The initial silence of the presidential candidates reinforced the impression that thorny issues still need to be addressed.

Shortly afterward, Mr. Obama said in an interview on CNN that he was confident that a deal would be reached “eventually,” but he said, “I think there’s still some work that needs to be done.”

Mr. McCain said he, too, was optimistic, at least in the long run. “I am confident that we will reach an agreement that gets a majority of my colleagues on my side of the aisle as well as a majority on the other side,” he said on CBS.

The impression that much remains to be done was reinforced by Mr. Dodd’s comments. After saying he still hoped for a deal, the senator said it was important to take “whatever time it takes” to arrive at a good arrangement, since the effects will be felt for “years and years to come.”

It has become abundantly clear, that members of Congress are hearing from their constituents, many of whom are furious about the proposed rescue.

Democrats said that Senate and House Democrats and Senate Republicans and the White House were ready to hammer out a deal, but that House Republicans balked.

“We were ready to make a deal,” said Representative Barney Frank, Democrat of Massachusetts, who attended the meeting and was standing next to House Speaker Nancy Pelosi as Mr. Paulson Jr. asked for more time.

“The House Republicans now tell us we’re not for this, we have got something else,” Mr. Frank said.

He complained that the new House Republican counter-proposal included ideas about private mortgage insurance and a cut in the capital gains tax that Mr. Paulson had already testified would not work.

Mr. Frank blamed a “troika” of conservative House Republicans — Jeb Hensarling of Texas, Paul Ryan of Wisconsin, and Eric Cantor of Virginia — for pushing the alternative proposal.

Earlier Thursday, House and Senate negotiators said they had reached a deal on a rescue, authorizing unprecedented government intervention to buy distressed debt in a move to prevent what President Bush warned could be a widespread economic collapse.

Republicans and Democrats said that the legislation would include limits on the pay packages for executives of some firms that seek assistance and a mechanism for the government to take an equity stake in some of the firms, so taxpayers have a chance to profit if the bailout plan works.

The announcement that lawmakers had reached an accord came on a day of high political theater at the Capitol and at the White House — in a drama whose ending may be quite unpredictable, it seemed after the late-afternoon White House meeting broke up.

“We’re in a serious economic crisis,” Mr. Bush told reporters as the meeting began, shortly before 4 p.m. in the Cabinet Room of the White House, adding, “This meeting is an attempt to move the process forward. My hope is we can reach an agreement very shortly.”

Mr. McCain was seated at one end of a long conference table, Mr. Obama at the other, with the president and congressional leaders between them. Neither spoke, though Mr. McCain smiled broadly as reporters shouted questions that went unanswered by Mr. Bush.

The president, in a prime-time televised speech on Wednesday night, appealed to the nation — and to reluctant lawmakers — to support the plan.

After the address, the drafting effort continued through the night on both sides of Capitol Hill — with pizza on the House side, and Thai food in the Senate. (Negotiations between the House and the Senate can be nearly as complicated as negotiations between Democrats and Republicans.)

But even as Congressional leaders shook hands on an agreement, House Republicans warned that opposition was building.

Conservative Republicans, in particular, have said that such a huge government intervention violated their free market principles.

A senior Republican lawmaker, speaking on condition of anonymity so as not to undermine the party leadership, said there was a “violent reaction” among House Republicans to the Paulson plan. He said backers of the alternative, one of several that have been proposed in the House, are calculating that they can force the negotiators to accept it as part of a larger deal.

The big guy with the crew cut and a hand that lost three fingers to a meat grinder looked out at the most powerful men in global capitalism Tuesday, and asked a pointed question:

“I’m a dirt farmer,” said Senator Jon Tester, the Montana Democrat who still lives on his family homestead. “Why do we have one week to determine that $700 billion has to be appropriated or this country’s financial system goes down the pipes?”

Good question, one that Treasury Secretary Henry M. Paulson and Federal Reserve Chairman Ben Bernanke have yet to adequately answer. If they seemed flummoxed, perhaps it’s because they still can’t explain what will be accomplished by nearly nationalizing the banking system and giving the treasury secretary more power than a king.

Another question — since we now own a big part of the world’s largest insurance company, A.I.G., does that mean I can save a load of money on my car insurance? — might be easier to answer.

This bailout, in present form, is toast.

Some have already tried to protect the true villains of the crash of 2008. Witness Neil Cavuto of Fox News, he of the sycophantic questions to Enron executives and other thieves just before they were exposed, blaming the mortgage crisis on banks lending to “minorities and risky folks,” as he said last week.

There is certainly a food chain of greed, from the lowliest house-flipper in the Southern California exurbs to the Hamptons hedge fund manager. We all put reason in a box and buried it for a time.

But before $700 billion is committed to a secretary whose decisions “may not be reviewed by any court of law or any administrative agency,” as the original draft of the bailout states, it’s worth remembering where the biggest heist took place, and how Wall Street dragged down the rest of the country once before.

You could hear the echoes of history in Tester’s question, riding the fierce urgency of now at a time when the Great Depression and all its gloomy atmospherics are in the air again.

When the stock market crashed in 1929, losing 40 percent of its value over a brutal autumn, barely 2 percent of Americans owned stocks. People asked, sensibly: how could this affect me?

Who cared about those swells on Wall Street when cars were rolling off factory lines and the big open expanse of middle America was flush with wheat and corn?

Today, with more than 90 percent of all homeowners paying their mortgages on time and on budget, the parallel question arises: how could this minority of bad loans drag down Western capitalism?

It may be news to Joe Biden — with three gaffes this week, he’s approaching a record, even for him – but Franklin Roosevelt was not yet president during the crash. Herbert Hoover was, and there we have the reason why so many people cringed when John McCain said last week that the fundamentals of the economy were sound.

In his first days in office, Hoover said, “Americans are nearer to the final triumph over poverty than ever before in the history of the land.” Oops.

And just before he was swept to the dunce corner of history, Hoover said, “No one has yet starved.” At the time, people in rural America were eating brined tumbleweed and road-kill rabbits; the unemployment rate was 25 percent.

But the larger lesson is how Wall Street brought down Main Street. Banks were largely unregulated then, free to gamble people’s savings on stock market long-shots. When the market collapsed, the uninsured deposits went with it. By the end of 1932, one fourth of all banks were shuttered, and 9 million people lost their savings.

In this century, thanks to the deregulatory demons released by former McCain adviser Phil Gramm and embraced by just enough lobbyist-greased Democrats, Wall Street was green-lighted again to act like a casino.

Banks in the heartland passed on their mortgages to Wall Street, where they were sliced and diced in hundreds of largely incomprehensible ways. And while few people understand how those investment giants made money, this much is clear: it was a killing. In 2006 alone, Wall Street firms paid out $62 billion in bonuses.

With all the urgency of that famous National Lampoon magazine cover that showed a cute pooch with a gun to its head, and the line “If You Don’t Buy This Magazine, We’ll Kill This Dog,” President Bush says the biggest bailout in American history must be passed now or the world will crumble. He said a similar thing in the run-up to war.

Just once, it might be worthwhile to listen to a dirt farmer like Jon Tester, who wonders why the same breathless attention is not given to the concerns of average Americans. Ah, but he’s only been in the Senate two years. Give him another term and he may start quoting Phil Gramm with approval.

There was no acknowledgement of the shocking failure of government regulation, or that the country cannot afford more tax cuts for the very wealthy and budget-busting wars, or that spending at least $700 billion of taxpayers’ money to bail out Wall Street and the banks should be done carefully, transparently and with oversight by Congress and the courts.

We understand why he may have been reluctant to address the nation, since his contempt for regulation is a significant cause of the current mess. But he could have offered a great deal more than an eerily dispassionate primer on the credit markets in which he took no responsibility at all for the financial debacle.

He promised to protect taxpayers with his proposed bailout, but he did not explain how he would do that other than a superficial assurance that in sweeping up troubled assets, government would buy low and sell high. And he warned that “our entire economy is in danger” unless Congress passes his bailout plan immediately.

In the end, Mr. Bush’s appearance was just another reminder of something that has been worrying us throughout this crisis: the absence of any real national leadership, including on the campaign trail.

Given Mr. Bush’s shockingly weak performance, the only ones who could provide that are the two men battling to succeed him. So far, neither John McCain nor Barack Obama is offering that leadership.

What makes it especially frustrating is that this crisis should provide each man a chance to explain his economic policies and offer a concrete solution to the current crisis.

Mr. McCain is doing distinctly worse than Mr. Obama. First, he claimed that the economy was strong, ignoring the deep distress of the hundreds of thousands of Americans who have already lost their homes. Then he called for a 9/11-style commission to study the causes of the crisis, as if there were a mystery to be solved. Over the last few days he has become a born-again populist, a stance entirely at odds with the career, as he often says, started as “a foot soldier in the Reagan revolution.”

After daily pivoting, Mr. McCain now says that the bailout being debated in Congress has to protect taxpayers, that all the money has to be spent in public and that a bipartisan board should “provide oversight.”

But he offered not the slightest clue about how he would ensure that taxpayers would ever “recover” the bailout money.

Mr. McCain proposed capping executives’ pay at firms that get bailout money, a nicely punitive idea but one that does nothing to mitigate the crisis. And that is about as far as his new populism went.

What is most important is that Mr. McCain hasn’t said a word about strengthening regulation or budged one inch from his insistence on maintaining Mr. Bush’s tax cuts for the wealthy. That trickle-down notion has done nothing to improve the lives of most Americans and, even without a $700 billion bailout, saddled generations to come with crippling deficits.

Mr. Obama has been clearer on the magnitude and causes of the financial crisis. He has long called for robust regulation of the financial industry, and he said early on that a bailout must protect taxpayers. Mr. Obama also recognizes that the wealthy must pay more taxes or this country will never dig out of its deep financial hole. But as he does too often, Mr. Obama walked up to the edge of offering full prescriptions and stopped there.

We don’t know if Mr. McCain or Mr. Obama will do any good back in Washington. But Mr. McCain’s idea of postponing the Friday night debate was another wild gesture from a candidate entirely too prone to them. The nation needs to hear Mr. Obama and Mr. McCain debate this crisis and demonstrate who is ready to lead.

THE Federal Reserve chairman and senior economic officials of the Bush administration solemnly filed into the large conference room of the Treasury Department. There was a sense of urgency, an understanding that drastic action — restructuring the financial landscape of corporate America — was desperately needed.

Last week? Last night, as the president and his advisers prepared for his address to the nation? Hardly. It was Feb. 22, 2002. The officials were President Bush’s original economic team, including the Securities and Exchange Commission’s chairman, Harvey Pitt; Glenn Hubbard, the chairman of the Council of Economic Advisers; and the senior White House economic adviser, Lawrence Lindsey. The Federal Reserve chairman, of course, was Alan Greenspan.

The crisis of that moment was the implosion of Enron, Global Crossing and other companies. Along with conflicts of interest and criminally creative bookkeeping, the culprit was often a combination of financial complexity and insanely expensive compensation packages.

Enron is long gone, but this episode — as much a warning for our financial security as the 1993 World Trade Center bombing was to the threat of wider terrorism — carries some telling lessons as our best minds struggle now to save the economy.

The meeting, recounted to me by Paul O’Neill, Mr. Bush’s first Treasury secretary, and several other participants, was something of a showdown. Everyone came armed for battle, none more than Mr. Greenspan and Mr. O’Neill, who railed that day like a pair of blue-suited Jeremiahs. Their colloquy on economic policy and corporate practice, which began when they were senior officials in the Ford administration, had evolved over three decades.

To the surprise of many younger men in the room, the duo opened by reminiscing about a bygone era when the value of a company’s stock was assessed by how strong a dividend was paid. It was a standard that demanded tough, tangible choices. Everything, of course, came out of the same pot of cash, from executive compensation and capital improvements to the dividend — which could be spent by a shareholder or reinvested in more company stock as a show of support.

In contrast to dividends, Mr. Greenspan intoned, “Earnings are a very dubious measure” of corporate health. “Asset values are, after all, just based on a forecast,” he said, and a chief executive can “craft” an earnings statement in misleading ways.

Mr. O’Neill, for his part, pushed to alter the threshold for action against chief executives from “recklessness” — where a difficult finding of willful malfeasance would be necessary for action against a corporate chief — to negligence. That is, if a company went south, the boss could face a hard-eyed appraisal from government auditors and be subject to heavy fines and other penalties. By matching upside rewards with downside consequences — a bracing idea for the corner office — Messrs. O’Neill and Greenspan hoped fear would compel the titans of business to enforce financial discipline, full public disclosure and probity down the corporate ranks.

But they were in the minority. Mr. Pitt, the S.E.C. chairman, voiced concern that creation of a new entity to assess negligence by corporate honchos might draw power away from his agency. Lawrence Lindsey said, “There’s always the option of doing nothing,” that the markets are “already discounting the stocks in companies that show accounting irregularities.”

An article about the meeting appeared a few days later in The Wall Street Journal. The next day, Mr. O’Neill was in Florida addressing chief executives of America’s top 20 financial services companies. They piled on. One told the Treasury secretary that he’d “rather resign” than be held accountable for “what’s going on in my company.” A phalanx of outraged financial industry chiefs, many of them large Republican contributors, called the White House. Real reform was a political dead letter.

A presidential speech that followed was toothless, mostly recommending that chief executives personally certify their companies’ financial statements. Earnings per share remained the gold standard. The Sarbanes-Oxley bill, signed into law a few months later, largely focused on the auditors, and actually increased the complexity of reporting practices. As for lawsuits? Not to worry. No significant rise.

At issue, of course, were those twins, transparency and accountability. The years since have shown that the first one is meaningless without the second. With a world financial crisis upon us, the president and his economic team are forced again to talk about accountability. Let’s hope this time they mean it.

GREED — and its crafty sibling, speculation — are the designated culprits for the financial crisis. But another, much admired, habit of mind should get its share of the blame: the delusional optimism of mainstream, all-American, positive thinking.

As promoted by Oprah Winfrey, scores of megachurch pastors and an endless flow of self-help best sellers, the idea is to firmly believe that you will get what you want, not only because it will make you feel better to do so, but because “visualizing” something — ardently and with concentration — actually makes it happen. You will be able to pay that adjustable-rate mortgage or, at the other end of the transaction, turn thousands of bad mortgages into giga-profits if only you believe that you can.

Positive thinking is endemic to American culture — from weight loss programs to cancer support groups — and in the last two decades it has put down deep roots in the corporate world as well. Everyone knows that you won’t get a job paying more than $15 an hour unless you’re a “positive person,” and no one becomes a chief executive by issuing warnings of possible disaster.

The tomes in airport bookstores’ business sections warn against “negativity” and advise the reader to be at all times upbeat, optimistic, brimming with confidence. It’s a message companies relentlessly reinforced — treating their white-collar employees to manic motivational speakers and revival-like motivational events, while sending the top guys off to exotic locales to get pumped by the likes of Tony Robbins and other success gurus. Those who failed to get with the program would be subjected to personal “coaching” or shown the door.

The once-sober finance industry was not immune. On their Web sites, motivational speakers proudly list companies like Lehman Brothers and Merrill Lynch among their clients. What’s more, for those at the very top of the corporate hierarchy, all this positive thinking must not have seemed delusional at all. With the rise in executive compensation, bosses could have almost anything they wanted, just by expressing the desire. No one was psychologically prepared for hard times when they hit, because, according to the tenets of positive thinking, even to think of trouble is to bring it on.

Americans did not start out as deluded optimists. The original ethos, at least of white Protestant settlers and their descendants, was a grim Calvinism that offered wealth only through hard work and savings, and even then made no promises at all. You might work hard and still fail; you certainly wouldn’t get anywhere by adjusting your attitude or dreamily “visualizing” success.

Calvinists thought “negatively,” as we would say today, carrying a weight of guilt and foreboding that sometimes broke their spirits. It was in response to this harsh attitude that positive thinking arose — among mystics, lay healers and transcendentalists — in the 19th century, with its crowd-pleasing message that God, or the universe, is really on your side, that you can actually have whatever you want, if the wanting is focused enough.

When it comes to how we think, “negative” is not the only alternative to “positive.” As the case histories of depressives show, consistent pessimism can be just as baseless and deluded as its opposite. The alternative to both is realism — seeing the risks, having the courage to bear bad news and being prepared for famine as well as plenty. We ought to give it a try.

A BAILOUT WE DON'T NEED By James K. Galbraith
Thursday, September 25, 2008; Page A19

Now that all five big investment banks -- Bear Stearns, Merrill Lynch, Lehman Brothers, Goldman Sachs and Morgan Stanley -- have disappeared or morphed into regular banks, a question arises.

Is this bailout still necessary?

The point of the bailout is to buy assets that are illiquid but not worthless. But regular banks hold assets like that all the time. They're called "loans."

With banks, runs occur only when depositors panic, because they fear the loan book is bad. Deposit insurance takes care of that. So why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory? If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately. If it isn't, the FDIC has the bridge bank facility to take care of that.

Next, put half a trillion dollars into the Federal Deposit Insurance Corp. fund -- a cosmetic gesture -- and as much money into that agency and the FBI as is needed for examiners, auditors and investigators. Keep $200 billion or more in reserve, so the Treasury can recapitalize banks by buying preferred shares if necessary -- as Warren Buffett did this week with Goldman Sachs. Review the situation in three months, when Congress comes back. Hedge funds should be left on their own. You can't save everyone, and those investors aren't poor.

With this solution, the systemic financial threat should go away. Does that mean the economy would quickly recover? No. Sadly, it does not. Two vast economic problems will confront the next president immediately. First, the underlying housing crisis: There are too many houses out there, too many vacant or unsold, too many homeowners underwater. Credit will not start to flow, as some suggest, simply because the crisis is contained. There have to be borrowers, and there has to be collateral. There won't be enough.

In Texas, recovery from the 1980s oil bust took seven years and the pull of strong national economic growth. The present slump is national, and it can't be cured that way. But it could be resolved in three years, rather than 10, by a new Home Owners Loan Corp., which would rewrite mortgages, manage rental conversions and decide when vacant, degraded properties should be demolished. Set it up like a draft board in each community, under federal guidelines, and get to work.

The second great crisis is in state and local government. Just Tuesday, New York Mayor Michael Bloomberg announced $1.5 billion in public spending cuts. The scenario is playing out everywhere: Schools, fire departments, police stations, parks, libraries and water projects are getting the ax, while essential maintenance gets deferred and important capital projects don't get built. This is pernicious when unemployment is rising and when we have all the real resources we need to preserve services and expand public investment. It's also unnecessary.

What to do? Reenact Richard Nixon's great idea: federal revenue sharing. States and localities should get the funds to plug their revenue gaps and maintain real public spending, per capita, for the next three to five years. Also, enact the National Infrastructure Bank, making bond revenue available in a revolving fund for capital improvements. There is work to do. There are people to do it. Bring them together. What could be easier or more sensible?

Here's another problem: the wealth loss to near-retirees and the elderly from a declining stock market as things shake out. How about taking care of this, with rough justice, through a supplement to Social Security? If you need a revenue source, impose a turnover tax on stocks.

Next, let's think about what the next upswing should try to achieve and how it should be powered. If the 1960s were about raising baby boomers and the '90s about technology, what should the '10s and '20s be about? It's obvious: energy and climate change. That's where the present great unmet needs are.

So, let's use the next few years to plan, mapping out a program of energy conservation, reconstruction and renewable power. Let's get the public sector and the universities working on it. And let's prepare the private sector so that when the credit crunch finally ends, we'll have the firms, the labs, the standards and the talent in place, ready to go.

Some will ask if we can afford it. To see the answer, don't look at budget projections. Just look at interest rates. Last week, in the panic, the federal government could fund itself, short term, for free. It could have raised money for 30 years and paid less than 4 percent. That's far less than it cost back in 2000.

No country in this situation is broke, or insolvent, or even in much trouble. For once, Wall Street's own markets speak the truth. The financially challenged customer isn't Uncle Sam. He's up on Wall Street, where deregulation, greed and fraud ran wild.

http://www.washingtonpost.com/

http://www.washingtonpost.com/ac2/related/topic/Wall+Street?tid=informline

http://www.washingtonpost.com/ac2/related/topic/Warren+Buffett?tid=informline

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THANKS HANK IS NOT A VOTE OF CONFIDENCE

Attn: Hank Paulson

Department of the Treasury

1500 Pennsylvania Ave. NW

Washington, D.C. 20220

Addresses for members of Congress at VoteSmart.orgTHEN:

1. Call Congress at 202-224-3121 with demands from ThanksHank.org

2. Sign Petition to Support the Progressive Counter proposal at Democrats.com

3. Prepare to FAX, send, email and hand deliver Congress Spineless Citations, if they pass the Wall Street Bailout without including the Progressive Criteria at ThanksHank.org
Addresses and FAX numbers at VoteSmart.org

Keep the pressure coming! Demand Equity for Americans, Accountability for the Wrong Doers, including, but not limited to investigation and prosecution.

Every red cent that can be recovered from the plunders should be.

They can sell a few houses and boats and drop a few Country Club Memberships.

Hell the President only makes $400,000, and he’s not worth it, and you would be hard pressed to convince me that any corporate head is worth any more that that

…. Why …

BECAUSE I WON'T BE LISTENING!