The political breakdown came as the collapse of Washington Mutual Inc. the largest bank failure in US history marked another low point in the financial crisis. And angry Democrats warned that Treasurys whole initiative could collapse unless President Bush gets House Republicans to come to the table.
Unless this fourth leg shows up at some point, this could fall off very quickly, said Senate Banking Committee Chairman Christopher Dodd (D-Conn.).
At the White House, in fact, House Minority Leader John Boehner had bluntly warned about the lack of Republican support for the massive government intervention: I cant invent votes, Boehner said. But House Financial Services Committee Chairman Barney Frank (D-Mass.) angrily accused the minority of trying to undercut Paulson by crafting a late-breaking alternative proposalwith the tacit support, Frank said, of Republican presidential candidate John McCain.
Both McCain and his Democratic rival, Sen. Barack Obama, would leave the White House without comment, and the meeting was described as among the wildest in memory. A beleaguered President Bush had to struggle to maintain order and reassert himself. And when Democrats left to caucus in the Roosevelt Room, Paulson pursued them, begging that they not blow up the legislation.
The former Goldman Sachs CEO even went down on one knee as if genuflecting, to which Speaker Nancy Pelosi (D-Cal.) is said to have joked, I didnt know you were Catholic.
It was McCain who had urged Bush to call the White House meeting but Democrats made sure Obama had a prominent part. And much as they complained later of being blindsided, the whole event turned out to be something of an ambush on their partaimed at McCain and House Republicans.
Speaking professionally, said one Republican aide, They did a very good job.
When Bush yielded early to Pelosi and Senate Majority Leader Harry Reid (D- Nev.) to speak, they yielded to Obama to speak for the assembled Democrats. And it was Obama who raised the subject of the conservative alternative and pressed Paulson on what he thought of the idea.
House Republicans felt trappedsqueezed by Treasury, House Democrats and a bipartisan coalition in the Senate. And while McCain spoke surprisingly little after asking for the meeting, he conceded that it appeared there were not the votes for the core Paulson plan without major changes.
A top adviser to McCain, Mark Salter, said later that the senator had not endorsed the House conservative plan but felt it reflected a desire by lawmakers for more taxpayer protections that would help get the required votes. For example, Salter said, one option would be to make clear that the secretary neednt be confined to buying up bad debts and could use other routes such as loans or federally-backed insurance to relieve the congestion in mortgage-related assets.
When talks resumed in Reids words to "put the train back on track, Paulson came to the Capitol but without Federal Reserve Chairman Ben Bernanke, who appears to want to stand clear of the negotiating session.
The wild White House meeting may have the effect of uniting Democrats more. And only hours before, Dodd, Frank and bipartisan set of prominent senators had reached a bipartisan agreement Thursday on the framework for legislation authorizing the massive government intervention.
But passing the Treasury plan is still an uphill climb, and Pelosi will be reluctant to expose her members if House Republicans are sitting out the process. And the whole sequence of events confirmed Treasurys fears about the decision by Bush, at the urging of McCain, to allow presidential politics into what were already difficult negotiations.