Treasury, Congress ramp up bank bailout talks

By Kevin Drawbaugh and Mark Felsenthal

WASHINGTON (Reuters) - The Bush administration and Congress on Sunday ramped up talks on an unprecedented $700 billion bank bailout as they battled the clock to prevent further financial market turmoil that risks hurtling the economy into a deep and damaging recession.

The plan for the largest-ever bank rescue would give sweeping powers to the U.S. Treasury to buy up toxic mortgage-related debt from financial firms, including U.S. subsidiaries of foreign banks.

Democratic leaders in Congress promised swift action, but also want to throw a lifeline to homeowners, not just Wall Street. With the economy issue No. 1 in an election less than six weeks away, lawmakers are striving to get a plan in place by week's end, fearful that delay could send markets reeling.

"This is a new phenomenon for every major player in this place and there are no dress rehearsals. That is why the market is so jittery. This has to work the first time," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

Two key questions remained unanswered even after Treasury Secretary Henry Paulson appeared on four television talk shows to press his case for emergency action. What price will the United States pay for these toxic debts, which have spawned the worst financial storm since the Great Depression? When will it start buying them?

"I'm confident that the credit market will improve but it will improve slowly. It just seems a lot of details have not been answered yet," said Jack Ablin, chief investment officer with Harris Private Bank in Chicago.

Paulson painted the proposed market intervention as a necessary evil, arguing the consequences of inaction would be so dire that the large burden on taxpayers would be worth it.

"This is not something that we wanted to do. This was something that was very necessary," Paulson said on the NBC Sunday program "Meet the Press."

"We did this to protect the taxpayer."

DEMOCRATS SEEK AID FOR MAIN STREET

Democrats, who control both chambers of Congress, began to swap proposals with the Treasury in a bid to ensure any rescue plan balances Wall Street's interests with those of Main Street, while putting checks on the nearly unfettered power the administration sought for the Treasury secretary.

"Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation," said California Democratic Rep. Nancy Pelosi, the Speaker of the House of Representatives.

A list of proposed changes given to Treasury by the staff of the House Financial Services Committee sought limits on the compensation of executives of firms offloading assets, greater efforts to stem foreclosures, and oversight by the Comptroller General -- the government's main auditor.

"It's ... hard to tell the average American that we're going to continue to have foreclosures that destabilize neighborhoods and deprive cities of revenues they need, but we're going to buy up the bad paper," committee Chairman Barney Frank said on CBS' "Face the Nation."

There was similar sentiment among Democrats in the Senate.