WASHINGTON — Despite two days of testimony from its principal proponents — Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke — it remains unclear how a proposed facility to buy up illiquid assets would identify, price, manage, or resell assets.
Still, Congress is expected to approve the sweeping bill within days, greatly expanding the Treasury Department's power with few checks or balances.
"The alternative is scary," said Mark Zandi, founder of Moody's Economy.com. "If they don't pass it, there's a good possibility the financial system will go into turmoil, and that's not good for anybody."
Donald Mullineaux, a banking professor at the University of Kentucky, said lawmakers have been unable to craft another option on such a tight deadline.
"I don't think they can come up with any alternatives," he said. "It's been presented to them that if we don't do this, the world is going to fall apart … and almost all of them believe that."
Lawmakers are likely to include some type of oversight mechanism to track the Treasury's use of the facility, put curbs on executive compensation, and allow the government to take equity stakes in the firms it assists. But the details will be left for later. In fact, how executive compensation or equity stakes are determined is likely to be left up to the Treasury.
Testifying at a House Financial Services Committee hearing Tuesday, Mr. Paulson accepted the idea that executive compensation limits would be added to the bill, but he said, "We must find a way to address this without undermining the legislation."
In a draft outline of the revised bill, obtained by American Banker, Democrats are also seeking to include a measure to let judges rework mortgages in the bankruptcy process. The financial services industry opposes that provision.
To protect taxpayer dollars, the draft would require the Treasury to obtain warrants from participating companies, remit profits back to the government, and consider an institution's health before letting it use the facility "so as not to artificially prop up companies that will fail anyway."
The draft also includes intensive oversight of the program and foreclosure prevention efforts, including encouraging loan modifications.
Whether the Bush administration would agree to these changes was unclear.
It was also possible that lawmakers would try to reduce the facility's price tag.
Sen. Charles Schumer and others have questioned why the Treasury should be able to hold up to $700 billion of troubled assets at any one time. The New York Democrat has suggested phasing in its power, allowing it to purchase only a smaller amount to see if the program works as advertised. Mr. Paulson and Mr. Bernanke have said that would limit their authority and would not instill confidence in the financial markets.
Observers said some type of limitations are inevitable.
"Congress will insist on including some strict provisions," said Larry Sabato, director of the University of Virginia's Center for Politics. "Exactly what the provisions will be is unknown. But it's significant that both liberal Democrats and conservative Republicans are unhappy. They are not going to rubber stamp this. They are hearing from unhappy constituents who believe that the taxpayers are being ripped off to bail out the rich."
Lawmakers from both parties have complained loudly about the need for a bailout, and independent opinion polls show the plan is deeply unpopular with the public. As a result, the two major presidential candidates agreed Wednesday to issue a joint statement on the bailout proposal to help lawmakers from both parties support the plan.
The agreement was reached after a call by Sen. Barack Obama, D-Ill., to Sen. John McCain, R-Ariz., in the morning. Sen. McCain said he would suspend his campaign and return to Washington to address the crisis, and he urged Friday's presidential debate to be suspended.
"It has become clear that no consensus has developed to support the administration's proposal," Sen. McCain said. "I do not believe that the plan on the table will pass as it currently stands, and we are running out of time."
Sen. Obama said he was concerned that interjecting presidential politics into the bill could delay it further, however.
Opposition has continued to weaken as Mr. Paulson and Mr. Bernanke has worked to shore up support for the bailout package.
House Republicans, who were vociferous in their objections to the plan two days earlier, appeared to agree by Wednesday that something has to be done before Congress adjourns at the end of the week.
"Wall Street should feel confident that before we leave … Congress will respond in a way that I believe is still beneficial to the markets," said Rep. Scott Garrett, a conservative free-market New Jersey Republican who sits on the House Financial Services Committee.
Though Rep. Garrett still prefers a Republican free-market alternative, he said Mr. Paulson made a compelling case to Republicans in a private meeting that included Mr. Bernanke that inaction would risk an economic collapse.
"Paulson, to give credit where credit is due, laid out the case better as to the dilemma that the economy is in right now," he said.
Rep. Gary Miller, another House Financial Services Committee member who participated in the meeting, said he would vote for the bill, even though his constituents are overwhelmingly opposed. The California Republican said calls to his office have been 150 to 1 against the plan.
"We need to do something, and we need to do something to make a statement and improve stability as rapidly as possible," Rep. Miller said. "Hopefully, we can stop playing politics and look at what we are trying to do for the market and the economy."
President Bush was expected to give a national address late Wednesday making the case for the package.