As negotiators raced the clock in search of a compromise, President Bush used a rare prime-time address to the nation Wednesday night to try to convince a skeptical public and rebellious Republicans that the government must put $700 billion of taxpayers’ money at risk to bail out the financial system.
Putting his battered prestige on the line, Bush painted a stark picture of the country’s financial condition: “We’re in the midst of a serious financial crisis. . . . Our entire economy is in danger,” he said. “America could slip into a financial panic.”
“This rescue effort is not aimed at preserving any individual company or industry. It is aimed at preserving America’s overall economy,” Bush said. “It will help American consumers and businesses get credit to meet their daily needs and create jobs. And it will help send a signal to markets around the world that America’s financial system is back on track.”
With financial markets still jittery and credit for day-to-day economic activity apparently freezing up, Bush said he would convene a White House meeting today with leading Democrats and Republicans, including the two parties’ presidential nominees, to seek agreement on a plan.
In the wake of Bush’s speech, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, who had represented congressional Democrats in negotiations with the administration on the bailout, struck an optimistic note. “We are well on track to get an agreement, he said, adding, “I believe the votes will be there.”
Frank explained the political logic of the situation this way: “Whatever you think about whether or not there was a need [for a bailout] . . . once the president, secretary of the Treasury and chairman of the Federal Reserve have announced that if you don’t do this, there will be a collapse, there’s probably going to be a collapse if you don’t do it.”
Key Democrats and Republicans from the House and Senate are scheduled to sit down today to draft a final bipartisan version of the plan.
Democrats had been waiting for Bush to speak out more prominently for the bailout plan and to demand that GOP lawmakers support it. They have argued that they should not have to take the political risk of passing the wildly unpopular measure without Republicans joining in, especially since they blame lax oversight by the administration and GOP advocacy of deregulation for causing the crisis.
In addition, a number of Democrats said they would support the measure only with certain changes -- chief among them a provision to keep Wall Street executives from personally profiting from their firms’ participation in the bailout, and a way for the government to share in the profits of Wall Street firms that benefit.
Treasury Secretary Henry M. Paulson initially opposed capping executive compensation in participating firms because he said those provisions could reduce the plan’s chances of success. But he told the House Financial Services Committee on Wednesday: “The American people are angry about executive compensation and rightfully so. We must find a way to address this in the legislation.”
At issue is a plan devised by Paulson to borrow as much as $700 billion to buy up troubled mortgage-backed securities to get them off the books of financial institutions, allowing those firms to resume their normal roles in the economy.
Paulson, Federal Reserve Chairman Ben S. Bernanke and now the president contend that only by taking such an audacious step can the country put a quick end to the 14-month-old financial crisis and save the economy from a serious recession. Moreover, they say, if all goes as planned and the financial system stabilizes, the government would get back all or most of its money, although the $700 billion would be in addition to potentially hundreds of billions that Washington committed earlier in the crisis.
Wholehearted endorsement of massive government intervention represents a startling about-face for a president who has insisted throughout his career that such meddling creates problems instead of fixing them. In his address, Bush acknowledged the turnabout.
“I’m a strong believer in free enterprise, so my natural instinct is to oppose government intervention,” he told viewers. “I believe companies that make bad decisions should be allowed to go out of business. . . . But these are not normal times.”
Paulson, who underwent a second day of rough treatment defending the plan on Capitol Hill, found himself in the awkward position of finding Democratic leaders more receptive to working out an agreement than members of his own Republican Party.
The secretary indicated that he was ready to give ground on some facets of the plan, so long as it preserved the core principle of federal action to soak up the loss-ridden mortgage-backed securities that threaten to paralyze the financial system and thus damage the whole economy.
Some Democrats said the funding for the bailout should be released in installments, with an opportunity to judge the bailout’s effectiveness as the process went forward.
Sen. Charles E. Schumer (D-N.Y.) said, “The question is, first . . . do they actually need the whole $700 billion? And, second, what kind of checkpoints are there along the road?”
In the House, Speaker Nancy Pelosi (D-San Francisco) and Minority Leader John A. Boehner (R-Ohio) issued an unusual joint statement, declaring that the two sides “have made progress” but otherwise giving few details.
On the campaign trail, Republican nominee Sen. John McCain and Democratic nominee Sen. Barack Obama expressed support for a rescue but nonetheless landed in a political wrestling match over the issue.
McCain announced that he would suspend his campaign and return to Washington to try to help broker a deal. He called on Obama to agree to postpone the pair’s first debate, scheduled for Friday.
Obama reacted by declaring that he would come to Washington only if congressional or administration leaders told him his presence would help. In a hastily arranged news conference, he also declared that he would take part in the debate as planned.
Frank expressed scorn at McCain’s decision to take part in the Washington maneuvering. “All of a sudden, now that we’re on the verge of making a deal, John McCain airdrops himself in to help us,” Frank said. “Frankly, we’re going to have to interrupt a negotiating session tomorrow . . . and troop down to the White House for their photo op.”
Saying their constituents have reacted overwhelmingly negatively to the rescue plan, some lawmakers have urged the administration to rally public support for it.
Natalie Ravitz, an aide to Sen. Barbara Boxer (D-Calif.), said the senator’s Washington office Tuesday received 918 calls in opposition to the bailout -- and one in support.
About the only thing that all sides agreed on publicly is that the stakes for the financial system, the economy and ordinary Americans’ well-being could not be higher.
Only a handful of times in his presidency -- after the 9/11 attacks, for example, on the eve of the Iraq war and after Hurricane Katrina -- has Bush resorted to a direct prime-time appeal to the nation on a single subject.
By even broaching the idea of such a gigantic plan, Paulson and the administration have in effect conceded that more than a year of conventional economic treatment and a rush of emergency interventions had failed to break a financial fever that first soared in the summer of 2007 after defaults on subprime mortgages began to surge.
The effort also signals that without a huge bailout, the government could be forced to let the disease run its course largely unchecked. That has many economists unnerved.
“You don’t want to cry ‘fire’ in the theater,” said Richard Grossman, an economist at Wesleyan University and a student of financial panics, “but this is a crisis that could produce the kind of sharp, deep economic contraction that most Americans thought were things of the past.”
Times staff writers Nicole Gaouette and James Gerstenzang contributed to this report.
(BEGIN TEXT OF INFOBOX)
‘Our entire economy is in danger,’ Bush says
Excerpts from President Bush’s televised address:
We’re in the midst of a serious financial crisis, and the federal government is responding with decisive action. . . . My administration is working with Congress to address the root cause behind much of the instability in our markets. Financial assets related to home mortgages have lost value during the housing decline. And the banks holding these assets have restricted credit. As a result, our entire economy is in danger.
I’m a strong believer in free enterprise. So my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances. . . . Major sectors of America’s financial system are at risk of shutting down.
The government’s top economic experts warn that without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold:
More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically. And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs. Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college.
And ultimately our country could experience a long and painful recession.