Congress slows on plan; markets wince

Key congressional lawmakers from both parties on Monday indicated that difficult and bitter negotiations over the financial system bailout could consume Capitol Hill well into next week, and Wall Street didn’t respond kindly.

Financial markets plunged and premium crude prices staged their biggest one-day gain ever when it became clear speed may not be of the utmost importance to lawmakers negotiating with the Bush administration’s $700 billion financial market proposal.

“We are prepared to do what is necessary to avoid these unacceptable consequences, but we will not let haste abandon good judgment in the process,” Senate Majority Leader Harry Reid, Nevada Democrat, said Monday. “The Bush administration has called on Congress to rubber-stamp its bailout legislation without serious debate or efforts to improve it. That will not happen.”

Mr. Bush again prodded Congress for quick action, and House Financial Services Committee Chairman Barney Frank, Massachusetts Democrat, said the House and the administration have made significant progress on the plan, including agreements on an oversight board to monitor the Treasury Department’s handling of the bailout and mortgage aid for struggling homeowners.

“The whole world is watching to see if we can act quickly,” President Bush said, two days after the administration released details of its two-year plan to give the Treasury Department sweeping powers to help keep the U.S. financial system from collapsing.

But later in the day, Senate banking committee Chairman Christopher J. Dodd, Connecticut Democrat, offered a counterproposal that ratcheted up demands and appeared to upend agreements reached between the Treasury and House Democrats.

The proposal resurrected a provision that Democrats dropped from housing legislation earlier this year because of fierce White House opposition, allowing bankruptcy judges to modify defaulted mortgages. The AFL-CIO and other liberal groups laid down that provision as a condition for supporting the bailout Monday.

As liberals stiffened their demands for changes, conservative groups hardened their position against the massive government intervention and bailout, prompting several prominent conservatives to voice opposition to the Treasury plan.

Sen. Richard C. Shelby of Alabama, the ranking Republican on the Senate Banking, Housing and Urban Affairs Committee, who over the weekend had joined others searching for a compromise, Monday called the Treasury plan “neither workable nor comprehensive, despite its enormous price tag.”

“In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted and may actually cause the government to revert to an inadequate strategy of ad hoc bailouts,” Mr. Shelby said.

“Congress must immediately undertake a comprehensive, public examination of the problem and alternative solutions rather than swiftly pass the current plan with minimal changes or discussion.”

Worries that the bailout plan will break down or stall in Congress provoked another day of turmoil on Wall Street Monday. The Dow Jones Industrial Average fell more than 372 points, erasing most of its Friday gain after Treasury announced the plan.

Credit markets remained glued shut to many banks and businesses seeking short-term loans, while investors piled back into safe-haven investments like gold. Concerns about the massive amount of debt the Treasury will have to issue to finance the bailout weighed on Treasury bond prices and sent the dollar lower.

The lower dollar in turn raised inflation fears and sent investors scurrying into commodities like oil, which are popular as a hedge against inflation.

Premium crude prices staged their biggest one-day gain ever. October deliveries soared at one point by more than $25 to $120 a barrel, and the more active November contract rose $6.11 to $108.86 a barrel.

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