Congress Objects to Lack of Help Aimed at Homeowners

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By MARK LANDLER and DAVID M. HERSZENHORN

The White House waged a multifront campaign Tuesday to persuade Congress to accept its vast economic bailout plan, though many in Congress, still unhappy with what they were hearing, continued to push for changes that would provide stronger protection for taxpayers and impose tougher terms on financial institutions.

President Bush told world leaders that the United States had taken “bold steps” to deal with the financial crisis, while Vice President Dick Cheney and other top officials went to Capitol Hill to address lawmakers.

Treasury Secretary Henry M. Paulson Jr. and the chairman of the Federal Reserve, Ben S. Bernanke, faced five hours of grilling by skeptical, angry members of the Senate Banking Committee.

But with just six weeks before an election, Congress and the administration were negotiating intensely behind the scenes to resolve major sticking points in the plan, and some of the drama was intended for hometown audiences.

House Republicans seemed the least receptive of all, and by the end of the day, there was no clear road map.

In blunt terms, Mr. Bernanke warned the senators that if they failed to pass the $700 billion plan, they risked causing a recession, increasing joblessness and pushing more homes into foreclosure.

“This will be a major drag on the U.S. economy and greatly impede the ability of the economy to recover,” Mr. Bernanke said.

The lawmakers objected strenuously to the broad authority Mr. Paulson was requesting, the lack of additional steps to help homeowners avoid foreclosure and the absence of any demands for ownership stakes in the banks that would be helped.

Even Richard C. Shelby of Alabama, the senior Republican on the banking committee and one of the most vocal critics of the proposal, said he expected Congress and the White House to eventually reach a deal.

“I think Congress will react positively at the end of the day,” he said. “But in what form, we’re not sure yet.”

House Speaker Nancy Pelosi, the Senate majority leader; Harry Reid of Nevada; and other Democratic leaders met Tuesday afternoon to form a strategy for bringing the bailout legislation to the floors of both chambers later this week.

Mr. Cheney led a delegation from the White House, including the chief of staff, Joshua B. Bolten, and the budget director, Jim Nussle, to meet with House Republicans on Tuesday morning. But the visit did little to quiet a rising chorus of doubts.

“My sense is that the meeting did not abate the growing discontent,” said Representative Mike Pence, Republican of Indiana, who opposes the plan.

Representative John A. Boehner of Ohio, the Republican leader, said that there seemed to be little appetite for the bailout among his conference.

Still, he said that swift action was needed and he remained committed to a deal.

To help win some votes, Mr. Paulson agreed to speak to House Republicans on Wednesday morning, after which he and Mr. Bernanke must give a repeat performance before the House Financial Services Committee, an audience that could prove even more hostile than the Senate banking panel.

On Tuesday, Mr. Paulson rushed from the banking committee hearing to meet with Republicans at their weekly lunch. He faced tough questioning, but many lawmakers emerged from the meeting expressing support.

“We’re anxious to act, and to act quickly, to restore confidence in the markets and in our country,” Senator Mitch McConnell of Kentucky, the Republican leader, said after the meeting.

Democrats, however, grew concerned that a lack of Republican support, particularly in the House, could leave them in an undesired alliance with the Bush administration.

Mr. Reid, at a news conference, said Democrats were waiting for Republicans to signal that they had enough votes to support the bailout. “We have all heard what went on over in the House today,” Mr. Reid said. “It was a scene of disarray. So we need the Republicans to start producing some votes for us.”

Before that happens, however, lawmakers were waiting to see a final version of the plan. Democrats were pushing hardest for provisions that would require the Treasury to obtain warrants that would convert into equity in the companies helped and limits on the salaries of executives whose firms participate in the bailout.

Both presidential candidates, Senator Barack Obama and Senator John McCain, have called for such limits, as has Mr. Shelby, making it more likely that Treasury will have to find some form of compromise on the issue.

“The party is over for this compensation for C.E.O.’s who take golden parachutes as they drive their companies into the ground,” Ms. Pelosi said.

The White House is eager for a deal on the plan, recognizing that markets around the world are fluctuating daily, depending on how investors assess the United States’ response to the crisis.

In his speech to the United Nations, Mr. Bush said, “I can assure you that my administration and our Congress are working together to quickly pass legislation approving this strategy.” He added, “And I’m confident we will act in the urgent time frame required.”

Along with Mr. Cheney and Mr. Bolten, Mr. Bush dispatched Keith B. Hennessey, the director of Mr. Bush’s National Economic Council, to Capitol Hill.

Tony Fratto, Mr. Bush’s deputy press secretary, told reporters that it was imperative that Congress pass a bill this week. Asked what would happen if Congress fails to act this week, he said, “You should think of that as unthinkable.”

Reflecting their frustration, and perhaps the narrowness of their options, the lawmakers peppered Mr. Paulson and Mr. Bernanke with questions ranging from whether the rescue would work to whether it would end up bailing out Wall Street on the backs of taxpayers.

“I get some sense that we’re flying by the seat of our pants,” said Senator Robert Menendez, Democrat of New Jersey. “You want to come in strong and have the cavalry be there, but you’re not quite sure what the cavalry does once it arrives. And that’s part of my concern.”

Senator Charles E. Schumer, Democrat of New York, proposed limiting financing to $150 billion, and budgeting more in three months, after its progress could be assessed.

Several senators said they thought the best way to protect taxpayers was by requiring the Treasury Department to take warrants, which are instruments that are convertible into shares, as it did in its rescue of Fannie Mae, Freddie Mac and the American International Group. But Mr. Paulson said that could limit participation in the program, especially if companies decided to hold onto their troubled assets rather than cede some control to the Treasury Department. If that happened, Mr. Paulson said, the program would not do enough to get the market moving again.

But he and Mr. Bernanke did not do much to clear up confusion about how the bailout plan would work in practice. Mr. Bernanke, an economist, gave a tutorial on valuation of assets, distinguishing between those sold at fire-sale prices — what a portfolio would sell for if the cash were needed immediately — and those at hold-to-maturity prices, or what the same portfolio would fetch on the assumption that the underlying debt would be repaid.

To unclog the market, he said, the government would have to determine the hold-to-maturity price for assets with no other buyers. “Just as you sell a painting at Sotheby’s, until you sell it, nobody knows what it is worth,” Mr. Bernanke said.

He described a system of reverse auctions, in which the Treasury would name a price it was willing to pay, and the banks would decide whether to sell. Mr. Paulson said the government would also use other methods, depending on the assets involved, and was open to experimentation. Both officials pleaded with Congress not to tie the government’s hands by writing any particular sales method into the bailout legislation.

House Democrats were also reviving a push to grant bankruptcy judges the authority to modify the terms of mortgages on primary residences to lower payments for strapped borrowers.

Christopher Cox, the chairman of the Securities and Exchange Commission, also testified and said there were two major holes in the current rules: oversight of investment banks and of the market for credit default swaps, which, he noted had doubled in size since 2006, to $58 trillion.

None of the senators who listened to Mr. Paulson and Mr. Bernanke disputed the grim possibilities if Congress should do nothing, but it was clear they were hearing from angry constituents.

Senator Jim Bunning, a Kentucky Republican who is also one of the plan’s fiercest critics, said it would do nothing to stem the slide in housing prices or help people pay their mortgages. He said it was using taxpayer dollars to “prop up and clean up the balance sheets of Wall Street.”