* Bailout pact stalled after White House meeting
* Democrats accuse McCain of blocking deal
* Washington Mutual closed in biggest U.S. bank failure
* Congressional leaders say deal might take until weekend
* U.S. stock futures, dollar, Asian stocks fall
(Adds Frank on further talks, McCain campaign statement)
By Tom Ferraro and Richard Cowan
WASHINGTON Talks on a $700 billion rescue for
the U.S. financial system fell into chaos on Thursday amid
accusations Republican presidential candidate John McCain
scuppered the deal, and U.S. authorities closed Washington
Mutual and sold its assets in America's biggest ever bank
As negotiations over an unprecedented bailout plan to
restore credit markets degenerated into chaos, the largest U.S.
savings and loan bank was taken over by authorities and its
deposits auctioned off. U.S. stock futures fell by more than 1
percent, the dollar weakened and share markets in Asia fell.
The third-largest U.S bank JPMorgan Chase & Co said it
bought the deposits of Washington Mutual Inc, which has seen
its stock price virtually wiped out because of massive amounts
of bad mortgages. The government said there would be no impact
on WaMu's depositors and customers. JPMorgan said it would be
business as usual on Friday morning.
Had a bailout deal been reached in Congress, it may have
helped the savings and loan, founded in Seattle in 1889.
Efforts to find a suitor to buy WaMu faltered in recent days
over concerns about whether the government would reach a deal
to buy its toxic mortgages.
Earlier on Thursday, U.S. lawmakers had appeared close to a
final agreement on the bailout, lifting world stock markets and
sending the dollar higher. But an emergency White House meeting
between Congressional leaders with U.S. President George W.
Bush "devolved into a contentious shouting match," according to
a statement from the McCain campaign.
In advance of that meeting, which included the two men
battling to succeed him, Democrat Barack Obama and McCain, a
compromise bipartisan deal seemed imminent.
After the session, Congressional leaders said an agreement
could take until the weekend or longer.
Democratic Rep. Barney Frank, who has played a key role in
talks over the Bush administration proposal, said negotiations
would continue on Friday, but with no sign that House
Republicans would take part.
Republican U.S. Sen. Richard Shelby bluntly told reporters,
"I don't believe we have an agreement." He later said the deal
was in "limbo."
A group of conservative Republican lawmakers proposed an
alternative mortgage insurance plan, eschewing the Bush
administration's Wall Street bailout just weeks before the Nov.
4 election as many lawmakers try to hold on to their seats.
Democrats said McCain had scuppered the anticipated
agreement by throwing his support behind that scheme.
"Sen. McCain has sided with the House Republicans who want
to start with a completely different approach and reject what
President Bush put forward," said Rep. Henry Waxman, chairman
of the House Committee on Oversight and Government Reform.
"It's hard to imagine where we go from here," he said.
However, a statement issued by the McCain campaign said:
"At today's cabinet meeting, John McCain did not attack any
proposal or endorse any plan."
The conservative group's plan calls for the U.S. government
to offer insurance coverage for the roughly half of all
mortgage-backed securities that it does not already insure.
The architects of the original plan, U.S. Treasury
Secretary Henry Paulson and U.S. Federal Reserve Chairman Ben
Bernanke, rushed to Capitol Hill for late night meetings to
urge House Republicans to get back on track.
"It is critical that this legislation get done quickly,"
White House spokesman Tony Fratto said. "We have serious
concerns about the state of our credit markets."
U.S. Senate Banking Committee Chairman Christopher Dodd
said a deal could take beyond Friday to reach and took a swipe
at McCain, who returned from his presidential campaign to try
to broker a deal.
"What this looked like to me was a rescue plan for John
McCain for two hours," Dodd told CNN. "To be distracted for two
to three hours for political theater doesn't help."
INJECTION OF POLITICS
Also speaking to CNN, Obama said of McCain's involvement,
"The concern that I have ... is that when you start injecting
presidential politics into delicate negotiations then you can
actually create more problems rather than less."
Earlier, news that a deal was near stabilized beleaguered
money markets, frozen by a reluctance by banks to lend. The
rate on one-month U.S. Treasury bills shot higher as traders
unwound safe-haven trades. [nN25533665]
Still, officials from France to China voiced alarm.
"A crisis of confidence without precedent is shaking the
global economy," French President Nicolas Sarkozy said in a
speech in Toulon, France.
As Thursday's meeting began, Bush warned, "We're in a
serious economic crisis in the country if we don't pass a piece
Frank, the powerful Democratic chairman of the House
Financial Services Committee, said before the Bush meeting that
the deal would give the money to the U.S. Treasury in
installments rather than a $700 billion lump sum the Bush
The enormity of the deal, which would cost every man, woman
and child in the United States about $2,300, led many lawmakers
to ask Paulson during two days of rancorous hearings this week
to take the cash in installments.
The bailout exceeds total lending by the International
Monetary Fund since its inception after World War II. The IMF
has loaned $506.7 billion since 1947 to countries in crisis as
far flung as Argentina, Britain, Turkey and South Korea.
Frank also said the deal would allow the government to take
part-ownership of banks and ban companies that sell toxic
assets to the government from paying massive "golden
parachutes" to executives being fired.
Reflecting that the current crisis appears to be the most
serious since the Great Depression of the 1930s, fresh Federal
Reserve data showed U.S. banks and money managers have borrowed
a record $188 billion daily in recent days from the Fed -- a
daily amount roughly equal to Argentina's annual economic
"This looks like the balance sheet of a central bank that
is keeping the financial system on life support," said Michael
Feroli, U.S. economist with JPMorgan in New York.
The swirl of political theater and meetings in Washington
followed fresh turbulence in the world economy.
Orders for costly U.S. manufactured goods plunged in
August, new-home sales hit a 17-year low, while new claims for
jobless benefits shot up last week. [nN25327565]
Top U.S. industrial conglomerate General Electric Co,
widely seen as a bellwether of the U.S. economy, issued a
profit warning, citing "unprecedented weakness and volatility"
in the financial services market. [nN25394000]
The crisis reverberated in Amsterdam and Brussels, where
Fortis NV, the Belgian-Dutch financial services group, denied a
rumor the Dutch central bank had asked a Fortis rival to
support the company's liquidity position. Fortis shares sank as
much as 21 percent to 14-year lows. [nLP49229] China's second
largest insurer Ping An Insurance, which owns 5 percent of
Fortis, dived 8.7 percent because of the rumor.
In Asia, hundreds of people lined up outside the Hong Kong
branches of the Bank of East Asia Ltd, some sleeping there
overnight, to withdraw their savings.
China's banking regulator sought to reassure jittery
financial markets, denying a report that it had told local
banks to stop lending to U.S. banks.
INTENSE BAILOUT TALKS
The crisis comes after a month of turbulence marked by the
government's takeover of mortgage companies Fannie Mae and
Freddie Mac, the bailout of insurer American International
Group Inc, and the bankruptcy filing of investment bank Lehman
Brothers Holdings Inc.
Concern lingered that even with a bailout, the United
States may stumble, prompting a global slowdown.
German Finance Minister Peer Steinbrueck said one outcome
of the crisis would be a less dominant role for the United
States in the global financial system.
"The United States will lose its superpower status in the
world financial system. The world financial system will become
more multi-polar." [nLP17244]
(For related stories, please double click on the following
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(Writing by Mark Egan; Reporting by Richard Cowan, Alister
Bull, David Lawder, Kevin Drawbaugh, Glenn Somerville, Noah
Barkin, Richard Leong, Megan Davies, John Parry, Jessica Hall
and Ellis Mnyandu; editing by Jeffrey Benkoe, Toni Reinhold and