Lawmakers aim to nail down bailout deal

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.

FEAR OF CONTAGION

While Congress tried to find a way to stop the bleeding in America, investors fretted about contagion into Europe, where Belgian-Dutch financial group Fortis NV fired its interim chief executive after liquidity concerns pushed its shares to a 14-year low.

In London, regulators and politicians were in talks over the future of troubled lender Bradford & Bingley, raising the prospect that a second British bank could be nationalized.

At the U.S. Capitol, House Republicans were pressing for a form of bad loan insurance that banks would pay for to limit the burden taxpayers might have to shoulder from buying bad debts.

Sen. Charles Schumer, a New York Democrat, said Democrats were willing to allow that insurance provision as an option but warned it would further strain bank balance sheets.

Among other still-open issues was how much of the bad loan package would be available from the start. Democrats have pushed for the money to be made available in tranches in order to create a legislative check on the program.

Paulson, by contrast, had wanted to have the full $700 billion at his disposal from the start, arguing any package had to be big enough to instill confidence in shaky markets.

As the majority in Congress, Democrats could have sought to force a bill through the House and Senate, but leaders demanded a deal that would satisfy both parties.

With the entire House and one-third of the Senate facing re-election on November 4, some lawmakers said they were facing a backlash to a plan seen as providing a safety net for banks.

In New York, dozens of protesters marched from Times Square hoisting a banner that read "No Money for Wall Street, No Money for War, Bailout the Workers and the Poor."

"The feeling is of outrage against this bailout because the average person has not been bailed out of anything," said activist Sara Flounders, 60.

President George W. Bush acknowledged the public anger in a radio address. "If it were possible to let every irresponsible firm on Wall Street fail without affecting you and your family, I would do it. But that is not possible," he said.

(Writing by Kevin Krolicki; Additional reporting by Donna Smith, Deborah Charles, Dan Trotta and David Lawder; Editing by Vicki Allen)