Lawmakers aim to nail down bailout deal

By Kevin Drawbaugh and Richard Cowan

WASHINGTON (Reuters) - Congressional leaders locked themselves behind closed doors on Saturday and worked into the night with the aim of nailing down a deal on a $700 billion bank bailout and halting a downward spiral in the worst financial crisis since the Great Depression.

Leading lawmakers, who huddled with Treasury Secretary Henry Paulson, said they hoped to reach an agreement to create a massive government fund to buy up distressed debt from financial institutions staggered by failed mortgages.

The backroom deal-making on Capitol Hill played out against a looming deadline as lawmakers raced to reach an agreement before Asian markets open on Monday to avoid risking a repeat of last week's white-knuckle ride in the financial markets.

At one point, lawmakers consulted by phone with billionaire investor Warren Buffett, who last week invested $5 billion in Goldman Sachs and warned that markets were in a "dangerous situation" and on the verge of breaking down.

"We've made very significant progress," North Dakota Democratic Sen. Kent Conrad said as he emerged from an evening meeting. "I believe it is very clear that this has to be done."

But as Capitol Hill negotiations rolled into Saturday night, the prospect for a House of Representatives vote on the financial rescue package as early as Sunday appeared to fade.

With public anger simmering over a bailout for Wall Street as many Americans fear losing homes and jobs, Democrats and Republicans raced to add provisions to the bailout proposal intended to safeguard taxpayer funding.

Democrats said they were pushing for a tax on financial institutions that could recoup any public money lost in the process of buying up and selling off bad debt.

Meanwhile, House Republicans said it was more important to see Wall Street cover some of the cost of the bailout than to rush to complete a bill before Monday's opening bell.

"We're not moving on any kind of artificial timeline. We're moving toward the very best solution in the shortest period of time we can get to the very best solution," said Rep. Roy Blunt of Missouri, the chief negotiator for House Republicans.

The urgent background to the debate remained fear-wracked financial markets after big banks teetered, collapsed or refused to lend money to each other.

Regulators seized Washington Mutual Inc on Thursday in the biggest bank failure in U.S. history, selling its assets to JPMorgan Chase & Co. In a reflection of the shakeout, Washington Mutual filed for bankruptcy on Saturday.

Meanwhile, published reports said Wachovia Corp, the sixth-largest U.S. bank, began merger talks with potential partners after a 27-percent drop in its shares on Friday.

The rush to forge a bailout package also overshadowed the presidential campaign and Friday's debate between Democrat Barack Obama and Republican John McCain.

Obama accused McCain on Saturday of playing politics with the financial crisis, while his Republican rival tried to show leadership by returning to Washington, where an aide said he was working the phones behind the scenes.