WASHINGTON — Leaders of both parties of Congress agreed Thursday night to work with the Bush administration on an expedited plan to help end the crisis on Wall Street and get bad assets off the balance sheets of the nation's troubled financial institutions.
Coming on the heels of the unprecedented government rescue of giant insurer American International Group and the seizure of mortgage-finance giants Fannie Mae and Freddie Mac, the planned bipartisan legislation could produce the most significant changes in financial regulation since the Great Depression.
"Time is of the essence," said House Speaker Nancy Pelosi, D-Calif., saying the bipartisan effort will try to "insulate Main Street from Wall Street."
Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Christopher Cox went to the Capitol to discuss a range of measures, some of which require legislation, to end what's being called the most threatening financial crisis since the 1930s.
Although the details haven't been disclosed, the idea is to do what was done during the savings-and-loan crisis of the 1980s and create a way for the government to buy bad assets such as mortgage bonds that no one in the private sector wants to buy. This would get them off the balance sheets of banks, which have been forced to take a financial hit on the declining value of mortgage bonds.
"The root cause of the stress in capital markets is the real-estate correction, and what is going on with price declines in real estate," Paulson told reporters after the meeting. "We are coming together to work for an expeditious solution that is aimed right at the heart of this problem."
Senate Majority Leader Harry Reid, D-Nev., said it would be a "matter of hours, not days" before Congress gets a plan from the Bush administration and can begin work on it. Lawmakers expect to work through the weekend and pass the legislation next week.
"This of course is an unusual meeting; we've had a few lately," Reid said to laughs. "We have all committed to work with them on their proposal."
After a day of partisan sniping, everyone involved Thursday evening seemed intent on trying to calm markets by suggesting that there'd be bipartisan cooperation, although in the meeting Democrats pressed for a second economic stimulus to help the middle class, an idea the Bush administration has resisted.
"I think we saw the best of the United States of America in the Speaker's office tonight," Paulson said. "This country is able to come together and do things quickly when it needs to be done for the good of the American people."
That cooperative spirit was absent earlier in the day when Pelosi and other top Democrats blasted the Fed chairman for using taxpayers' money in Tuesday's bailout of AIG and presidential candidate John McCain called for the firing of SEC Chairman Cox, a fellow Republican.
In a statement late Thursday, Cox dismissed the attack as political.
"The best response to political jabs like this is simply to put your head down and not lose a step doing the best job you can possibly do on behalf of those you serve," Cox said. "For my part, I plan to do just that. I leave the political campaigns to pursue their own course."
McCain thinks that the SEC failed to do enough to stop short selling, a practice in which investors sell borrowed stock with the expectation that it will lose value and they can buy it later for a profit. The two remaining standalone investment banks, Morgan Stanley and Goldman Sachs, allege that short sellers seeking to capitalize on problems in the financial sector hammered their share prices down on Wednesday. Lehman Brothers, which filed for bankruptcy protection on Monday, made similar claims.
Short selling isn't illegal unless the parties are spreading rumors to influence downward trading that would allow them to take greater profits later. On Thursday night, Cox was considering at least a temporary ban on short selling. It wasn't clear whether the SEC's board had approved the move.
The United Kingdom's regulator, the Financial Services Authority, Thursday banned the short selling of financial stocks until January.
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