Congress examines $700 billion market bailout plan

By Kevin Drawbaugh and Richard Cowan

WASHINGTON (Reuters) - The Bush Administration sent a $700 billion plan for a U.S. government bailout of bad mortgage debt to Congress on Saturday, seeking extraordinary authority as it tackles the worst financial crisis since the Great Depression.

Democratic lawmakers, who control both houses of Congress, said they hoped to approve the bailout quickly but wanted changes such as more oversight, limits on executive pay at participating firms, and assistance for homeowners.

U.S. Treasury Secretary Henry Paulson would have extraordinary powers over the massive warchest and his decisions would not be reviewed by any court, according to a copy of the draft legislation obtained by Reuters.

The government could acquire up to $700 billion in home and commercial mortgages and related assets from U.S.-headquartered banks and other institutions over the next two years. Precisely how the purchases would be executed was unclear.

To allow for the bailout, the U.S. government's debt limit would rise to $11.315 trillion from $10.615 trillion.

The bailout plan follows a wrenching week that transformed Wall Street with Lehman Brothers' failure, the agreed sale of Merrill Lynch & Co and a government takeover of ailing insurer AIG.

The debt plan was hatched amid grave concerns that other major banks could collapse and that credit markets were close to freezing, threatening the functioning of the U.S. economy.

Showing more deals may still be in the works, Morgan Stanley's board was scheduled to meet on Saturday to consider a possible takeover by Wachovia Bank or selling a bigger stake to China Investment Corp., according to sources familiar with the situation.

With the House of Representatives and Senate aiming to consider the legislation within days, aides for lawmakers from both parties were expected to pore over the hastily drafted plan through the weekend.

Treasury Secretary Henry Paulson "is in effect becoming the dictator of the American financial system for a few months, subject to congressional oversight," said Wall Street historian John Steele Gordon, author of a book about the national debt.

DEMOCRATS CRITICAL

Congressional Republicans generally praised the Bush plan and called for its swift enactment, while Democrats said it left important questions unanswered and needed work.

U.S. House of Representatives Speaker Nancy Pelosi said Democrats would work with the Bush administration to swiftly respond to the turmoil, but would strengthen the proposal.

"We will also seek to protect lower- and middle-income Americans ... from the fallout of the ongoing Wall Street crisis, by enacting an economic recovery package that creates jobs and returns growth to our economy," she said.

But Senate Republican Leader Mitch McConnell of Kentucky said "now is not the time for partisan plans or pet projects."