Senate to vote on rescue plan with added tax cut

WASHINGTON - In a bold bid to revive President Bush's multibillion-dollar financial rescue plan, Senate leaders scheduled a vote for Wednesday night on a version of the bill that adds substantial tax cuts meant to appeal to Republicans when it reaches the House.

The goal is to net at least 12 more House votes than the rescue proposal received Monday, when lawmakers rocked the political and financial worlds by rejecting it.

The gambit is certain to anger some conservative House Democrats, who object to tax cuts that are not offset with spending cuts. But Senate strategists assume it will gain more House votes than it will lose.

If so, Congress would be poised to pass landmark legislation giving the government billions of dollars to buy deeply discounted mortgage-backed securities that are choking off credit and roiling the markets.

The strategy is risky because some House members might see it as a high-handed move by senators. Senate passage of a bailout measure has seemed assured all along. The showdown is in the House, but now the Senate is trying to force the House's hand.

Sen. Charles Schumer, D-N.Y., called it "a brilliant move" that will "help pick up votes on both sides of the aisle."

House Speaker Nancy Pelosi's reaction was much cooler. "The Senate has made a decision about how to proceed and what can pass that body," the California Democrat said. "The Senate will vote tomorrow night, and the Congress will work its will."

The new approach, announced Tuesday night by Senate Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., would tack large and contentious tax measures to the bailout bill. Senate leaders figure the House will have to approve it because the tax cuts are too appealing to Republicans and the financial rescue plan will still seem essential to most Democrats.

The Senate approach uses big, game-changing amendments. House leaders earlier were considering the smallest possible tweaks to the bill in hopes of picking up 12 more votes.

The Senate bill would raise federal deposit insurance limits to $250,000 from $100,000, as called for presidential nominees Barack Obama and John McCain only hours earlier.

House Minority Leader John Boehner, R-Ohio, praised the move, but many Democrats had signaled approval as well.

McCain, Obama and Sen. Joe Biden of Delaware, the Democratic vice presidential nominee, signaled plans to return to Washington for the Wednesday night vote. If Obama and Biden vote for the measure, it would make it more difficult for Pelosi and other Democrats to reject or change the Senate measure.

The Senate measure will graft the bailout language to a tax bill it approved last week, on a 93-2 vote. It includes: a provision to prevent more than 20 million middle-class taxpayers from feeling the bite of the alternative minimum tax, $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana and some $78 billion in renewable energy incentives and extensions of expiring tax breaks.

In a compromise worked out with Republicans, the bill does not pay for the AMT and disaster provisions but does have revenue offsets for part of the energy and extension measures.

That wasn't enough earlier this year for the House, which insisted that there be complete offsets for the energy and extension part of the package.

The Senate version also may include a measure to require health plans for 51 or more employees to give equal treatment to mental health or addiction if they cover such illnesses. The House and Senate have passed similar mental health parity measures, but none has gone to Bush for his signature.

The surprise move capped a day in which supporters of the imperiled economic rescue fought to bring it back to life, courting reluctant lawmakers with a variety of other sweeteners including the plan to reassure Americans their bank deposits are safe.

Wall Street, at least, regained hope. The Dow Jones industrials rose 485 points, one day after a record 778-point plunge following the House vote.

Amid Tuesday's negotiations, Federal Deposit Insurance Corp. chairman Sheila Bair asked Congress for temporary authority to raise the limit on deposits by an unspecified amount. That could help ease a crisis of confidence in the banking system, Bair said.

She said the overwhelming majority of banks remain sound but an increase in the cap would help ease a crisis of confidence in the banking system as well as encourage banks to begin more lending.

Monday's House vote was a stinging setback to leaders of both parties and to Bush. The administration's proposal, still the heart of the legislation under consideration, would allow the government to buy bad mortgages and other deficient assets held by troubled financial institutions. If successful, advocates of the plan believe, that would help lift a major weight off the already sputtering national economy.

Bush renewed his efforts to save the bailout plan Tuesday, speaking with McCain and Obama and making another statement from the White House. "Congress must act," he declared.

Though stock prices rose, more attention was on credit markets. A key rate that banks charge each other shot higher, further evidence of a tightening of credit availability.

The rescue package was Topic A on the presidential campaign trail.

"The first thing I would do is say, 'Let's not call it a bailout. Let's call it a rescue,'" McCain told CNN. He said, "Americans are frightened right now" and political leaders must give them an immediate solution and a longer-term approach to the problem.

Obama issued a statement saying that significantly increasing federal deposit insurance would help small businesses and make the U.S. banking system more secure as well as restore public confidence.

Bailout, Take II: What the Feds Do Next

After a bunch of all-nighters in Washington and some premature back-slapping, we're right back where we were a couple of weeks ago, after Lehman Brothers declared bankruptcy and the government lent AIG $85 billion. There's no one-size-fits-all bailout plan, after all. That $700 billion in taxpayer money remains under lock and key. Glum investors are now the ones bailing out, fleeing stocks and bonds and seeking safer ground.
But there are still some levers the government can pull. Working through the mess just won't be as orderly or predictable as it would if there were a single plan and a big pot of money. Here's what's likely to happen next:

Another try at a big bailout plan. A lot of those constituents who have been calling Congress to complain about rescuing fat cats are going to rethink their indignation as they watch the stock markets--and their own portfolios--sink. Lawmakers who voted against the bailout plan are going to have to explain why they're letting the markets collapse. The more uncomfortable voters get, the more likely Congress will be to pass some kind of sweeping relief plan. This is far from over.

More piecemeal bailouts. Before the big $700 billion bailout plan even existed, the Fed and the Treasury Department were already patching leaks in the financial system--one trouble spot at a time. The idea behind an umbrella bailout plan was to overhaul the whole system, establishing public standards and treating every ailing company more or less the same, before a bunch of leaks became a gusher. That would have eliminated the guesswork over whether a struggling company meets the criteria for a rescue--like AIG--or falls short, like Lehman Brothers.

Now we're back to guessing. The feds still have the wherewithal to lend money, buy bad assets, or take other measures to keep ailing companies afloat. What they don't have is a single plan that applies to all companies and the authority to soak up vast amounts of bad assets. So those weekend meetings at the New York Fed, with supplicant CEOs pleading for help, are likely to continue.

More failed companies. Duke University finance Prof. Campbell Harvey predicts there could be 750 to 1,000 bank failures over the next six months because of billions in bad assets stemming from the housing meltdown. Scarce credit also threatens other types of companies that are already struggling and desperately need capital, such as the Detroit automakers and some of the airlines. The government will be able to deal with some of those companies one at a time, but without a comprehensive plan, others will fall through the cracks.

Manic markets. Investors were hoping that a big bailout plan would offer some predictability about how the government will deal with struggling companies. Their crystal ball is once again very dark. That means wild swings in stock prices as big investors try to get out of the market ahead of bad news, and get back in if it looks like the feds will ride to the rescue. One of the most volatile sectors is likely to be regional bank stocks as investors worry that banks like Sovereign Bancorp and National City might be the next to fail.

Patchwork regulation. There's already a system in place for dealing with failed banks--led by the FDIC--but that may not be enough to handle the damage that's unfolding. Even without a big bailout bill, Congress may have to set up a new agency to deal with dozens or hundreds of bank failures, one similar to the Resolution Trust Corp. formed in the late 1980s. We could see a whole slew of lesser regulations, too, like restrictions on certain lending practices and higher federal coverage limits on bank deposits.

Continued government intervention. The Federal Reserve continues to pump huge sums of money into the global banking system in a desperate effort to prompt banks to loosen their grip on loans to companies, consumers, and one another. For now, that seems to be having little effect as banks absorb the startling news from Washington and hunker down. That may lead the Fed to pump out even more money and take other important steps, like cutting interest rates. Sooner or later, that will probably help loosen things up. Until then, however, it's apparently up to the markets to fix themselves. Plan accordingly.

Janet Jackson is hospitalized

NEW YORK - A representative for Janet Jackson says the singer has been hospitalized after falling ill shortly before a concert.

According to statement released by W&W Public Relations, the singer canceled her concert in Montreal on Monday after she "got suddenly ill" during her sound check and had to be rushed to the hospital just before show time.

The statement says Jackson is being monitored at the hospital and hopes to reschedule the show. No further information was given about Jackson's condition.

A phone call placed to W&W after hours went unanswered, and a representative did not immediately return an e-mail seeking more information.

Asian stocks sink after rejection of bailout

TOKYO - The historic carnage on Wall Street reverberated across Asia Tuesday, with stock markets in the region falling sharply after U.S. lawmakers rejected a $700 billion bank rescue plan aimed at stabilizing the U.S. financial system.People look at the updated stock prices in downtown Tokyo Tuesday, Sept. 30, 2008. Japanese stocks fell sharply Tuesday morning following a huge loss on Wall Street after the failure of the financial bailout plan in the U.S. The benchmark Nikkei stock 225 index fell 465.62 points, or 3.96 percent, to 11,277.99 shortly after trading began on the Tokyo Stock Exchange.

All major stock markets in the region succumbed to heightened fears of a broader global financial crisis, though they managed to trim some losses during afternoon trading.

Japan's benchmark Nikkei 225 index slumped 4.1 percent to 11,399.46, with popular stocks like Sony Corp. down 6.5 percent, and Toyota Motor Corp. down 4.6 percent.

In Hong Kong, the Hang Seng index fell 2.4 percent after earlier plunging more than 5 percent. In Australia, the S&P/ASX-200 index closed down 2.4 percent after falling as much as 5.3 percent.

"With the bailout plan being rejected, difficulties faced by many U.S. financial institutions are yet to be resolved," said Castor Pang, an analyst at Sun Hung Kai Financial. "The downward movement will continue for a period of time in the U.S., and Hong Kong markets will inevitably follow suit."

Investors were stunned by the U.S. House of Representatives' rejection Monday of a $700 billion emergency bailout package that would have allowed the government to buy bad mortgages and other sour assets held by troubled banks and other financial institutions.

With elections in November, many lawmakers were unwilling to take the political risk of supporting a measure that many American voters see as an undeserved bailout for rich, reckless investment bankers.

The Dow Jones industrial average plunged 777 points, its biggest ever single-day drop, or nearly 7 percent, to 10,365.45, its lowest close in nearly three years.

"This is a bad development," Australian Prime Minister Kevin Rudd told reporters in Australia's capital, Canberra. He urged U.S. lawmakers to urgently return to negotiations to come up with a deal that will prevent further infection of world markets.

Japanese Prime Minister Taro Aso urged the country's financial officials to closely monitor the situation and take appropriate measures to protect the world's No. 2 economy, according to Kyodo News agency.

"We have to respond appropriately in order not to affect the Japanese economy and to prevent the financial system from falling apart," Aso was quoted as saying.

Japan's banks have relatively little exposure to the bad mortgages at the core of the global credit crisis, but investors are worried that a slowdown in the U.S. and global economy will hurt demand for exports.

The key index in Taiwan's stock market, closed Monday for a typhoon, fell 3.6 percent even after Vice Premier Paul Chiu urged investors to have confidence in the island's export-driven economy and its financial markets.

Elsewhere, markets in South Korea and India dropped sharply but were down about 0.5 percent as trading progressed.

The chaos sapped the dollar overnight. The greenback was trading at 104.32 yen Tuesday afternoon in Asia from above 106 yen a day earlier, adding further pressure on major Japanese exporters.

LTTE fighting last battle own brutal way

LTTE repeated chemical attacks at troops advancing towards Nachchikuda




(Lanka-e-News, September 28, 2008, 10.20 PM) Army sources say that the LTTE repeatedly launched CS gas attacks at the troops advancing towards Nachchikuda in the western coast of Kilinochchi district as the troops in another front were preparing to attack Kilinochchi town by tomorrow.

Army sources say that the LTTE attacked with CS gas aiming to further protect LTTE forward defense lines in Nachchikulam and Karambakulam. Army has not suffered heavily since the soldiers in operation were equipped with gas masks. The gas is more powerful than tear gas and can faint a breather although it is not fatal.

LTTE deploys more reserves to save Killinochchi

The Army had closed in on the Mankulam-Iranamadu road (A-9) by last evening. In some areas, the former gap of 1km to the A-9 has been reduced to 300m due to ongoing operations. Fighting is ongoing in Kokavil area where LTTE units are being gradually encircled by troops.

Commanders have taken steps to maintain safe passage for civilians along the A-9. The 58 Division has also been gradually eating away at LTTE resistance along the Nachchikuda-Akkarayan road. The current lull in the battlefield is due to extra precautions to ensure safe passage for civilians.

Kilinochchi Town has now been emptied of civilians and only LTTE units move in and around the area, LRRP and intelligence units have confirmed. But all-out war for Kilinochchi could make the A-9 dangerously unsafe for civilians who are willing to escape.

Civilians have been moved to other civilian houses, schools and other buildings at Vishwamadu and Puthukudiirippu areas by the LTTE. 38 of these captives escaped via sea and reached Weli Oya recently but the large majority are yet to escape LTTE clutches.

While a cat and mouse game goes on with regard to civilians, LTTE units have been gradually recalled from Muhamalai and Nagarkovil lines into Kilinochchi for what intelligence sources believe could be the final push they have been awaiting. 150 more cadres had reached Kilinochchi last week.

Evidence of cadre movements were uncovered by ground troops on Friday morning when Army units conducting limited operations at the Muhamalai FDL discovered that some of the LTTE lines have been emptied of its cadres. Although it is usually the LTTE's practice to abandon the lines during daytime, it is unusual to empty them at night and in the morning. This trend is observed even at Nagarkovil.

Military commanders have continued with the small group operations in these areas despite the observation as large group operations have been vulnerable to indirect attacks several times before.

Meanwhile LTTE's insurgent operations in the east are still continuing primarily in STF controlled areas. STF was withdrawn from Batticaloa town following several attacks against the Security Forces by LTTE infiltrators. The Army filled in the void and sent in two Military Intelligence teams headed by two officers from Trincomalee. All infiltrators were systematically identified and gunned down. However unless similar steps are taken in STF controlled areas, insurgents may launch sporadic attacks. Possibility of large attacks can be largely overruled at this time.

Source - defencewire

Lawmakers, White House agree on $700B bailout

WASHINGTON - Congressional leaders and the White House agreed Sunday to a $700 billion rescue of the ailing financial industry after lawmakers insisted on sharing spending controls with the Bush administration. The biggest U.S. bailout in history won the tentative support of both presidential candidates and goes to the House for a vote Monday.

The plan, bollixed up for days by election-year politics, would give the administration broad power to use billions upon billions of taxpayer dollars to purchase devalued mortgage-related assets held by cash-starved financial firms.

President Bush called the vote a difficult one for lawmakers but said he is confident Congress will pass it. "Without this rescue plan, the costs to the American economy could be disastrous," Bush said in a written statement released by the White House. He was to speak publicly about the plan early Monday morning, before U.S. markets open.

Flexing its political muscle, Congress insisted on a stronger hand in controlling the money than the White House had wanted. Lawmakers had to navigate between angry voters with little regard for Wall Street and administration officials who warned that inaction would cause the economy to seize up and spiral into recession.

A deal in hand, Capitol Hill leaders scrambled to sell it to colleagues in both parties and acknowledged they were not certain it would pass. "Now we have to get the votes," said Sen. Harry Reid, D-Nev., the majority leader.

Rep. John A. Boehner, R-Ohio, the House minority leader, said he was urging "every member whose conscience will allow them to support this" to back it, but officials in both parties expected the vote to be a nail-biter.

The final legislation was released Sunday evening, and Republicans and Democrats huddled for hours in private meetings to learn its details and voice their concerns.

Many said they left undecided, and leaders were scrambling to put the most positive face on a deeply unpopular plan.

"This isn't about a bailout of Wall Street, it's a buy-in, so that we can turn our economy around," said House Speaker Nancy Pelosi, D-Calif.

The largest government intervention in financial markets since the Great Depression casts Washington's long shadow over Wall Street. The government would take over huge amounts of devalued assets from beleaguered financial companies in hopes of unlocking frozen credit.

"I don't know of anyone here who wants the center of the economic universe to be Washington," said a top negotiator, Sen. Chris Dodd, chairman of the Senate Banking, Housing and Urban Affairs Committee. But, he added, "The center of gravity is here temporarily. ... God forbid it's here any longer than it takes to get credit moving again."

The plan would let Congress block half the money and force the president to jump through some hoops before using it all. The government could get at $250 billion immediately, $100 billion more if the president certified it was necessary, and the last $350 billion with a separate certification — and subject to a congressional resolution of disapproval.

Still, the resolution could be vetoed by the president, meaning it would take extra-large congressional majorities to stop it.

As Bush's team stepped up its efforts to corral reluctant Republicans, the White House released a letter from his budget chief, Jim Nussle, to Boehner saying the measure would cost taxpayers "considerably less" than its eye-popping $700 billion total.

Lawmakers in both parties were poring over the 110-page bill. Democratic leaders have made it clear they will not support the rescue unless a substantial number of Republicans join them.

"It will take two to make this work," said Rep. Rahm Emanuel, D-Ill.

But it was a tough sell for lawmakers in both parties.

Rep. Joe Barton, R-Texas, an opponent, estimated that half of the House's 199 Republicans are "truly undecided."

Lawmakers who struck a post-midnight deal on the plan with Treasury Secretary Henry Paulson predicted final congressional action might not come until Wednesday.

The proposal is designed to end a vicious downward spiral that has battered all levels of the economy. Hundreds of billions of dollars in investments based on mortgages have soured and cramped banks' willingness to lend.

"If we do not do this, the trauma, the chaos and the disruption to everyday Americans' lives will be overwhelming, and that's a price we can't afford to risk paying," Sen. Judd Gregg, the chief Senate Republican in the talks, told The Associated Press.

Rep. Barney Frank of Massachusetts, the House Financial Services Committee chairman, predicted the measure would pass, though not by a large majority.

"It's not a bill that any one of us would have written. It's a much better bill than we got. It's not as good as it should be," he said.

A breakthrough came Saturday night, with the addition of a requirement sought by centrist Democrats and Republicans to ensure that the government be paid back by companies that got help. The president would have to tell Congress after five years how he planned to recoup the losses.

Another key bargain — this time to draw Republican support — allows, but doesn't require, government to insure some bad home loans rather than buy them. That's designed to limit the amount of federal money used in the rescue.

"This is something that all of us will swallow hard and go forward with," said Republican presidential nominee John McCain.

His Democratic rival Barack Obama sought credit for taxpayer safeguards added to the initial proposal from the Bush administration. Later, at a rally in Detroit, Obama said, "it looks like we will pass that plan very soon."

The rescue would only be open to companies who deny their executives "golden parachutes" and limit their pay packages. Firms that got the most help through the program — $300 million or more — would face steep taxes on any compensation for their top people over $500,000.

The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in recipients' future profits.

To help struggling homeowners, the plan would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes.

But Democrats surrendered other cherished goals: letting judges rewrite bankrupt homeowners' mortgages and steering any profits gained toward an affordable housing fund.

It was Obama who first signaled Democrats were willing to give up some of their favorite proposals. He told reporters Wednesday that the bankruptcy measure was a priority, but that it "probably something that we shouldn't try to do in this piece of legislation."

Frank negotiated much of the compromise in a marathon series of up-and-down meetings and phone calls with Paulson, Dodd, D-Conn., and key Republicans including Gregg and Blunt.

Pelosi shepherded the discussions at key points, and cut a central deal Saturday night — on companies paying back taxpayers for any losses — that gave momentum to the final accord.

An extraordinary week of talks unfolded after Paulson and Ben Bernanke, the Federal Reserve chairman, went to Congress 10 days ago with ominous warnings about a full-blown economic meltdown if lawmakers did not act quickly to infuse huge amounts of government money into a financial sector buckling under the weight of toxic debt.

The negotiations were shaped by the political pressures of an intense campaign season in which voters' economic concerns figure prominently. They brought McCain and Obama to Washington for a White House meeting that yielded more discord and behind-the-scenes theatrics than progress, but increased the pressure on both sides to strike a bargain.

Lawmakers in both parties who are facing re-election are loath to embrace a costly plan proposed by a deeply unpopular president that would benefit perhaps the most publicly detested of all: companies that got rich off bad bets that have caused economic pain for ordinary people.

But many of them say the plan is vital to ensure their constituents don't pay for Wall Street's mistakes, in the form of unaffordable credit and major hits to investments they count on, like their pensions.

Amid GOP revolt, bailout deal breaks down

WASHINGTON - A Republican rebellion stalled government efforts Thursday to avoid economic meltdown, a chaotic turnaround that disrupted the choreography of an extraordinary White House meeting meant to show joint resolve from the president, the political parties and the presidential candidates. Instead, the summit broke up so bitterly that Treasury Secretary Henry Paulson got on one knee before Democratic leaders in a theatrical attempt to salvage talks.

People rally in the financial district against the proposed government buyout of financial firms in New York City. An angry US public and Congress pushed Thursday to snip the rip cord on golden parachutes used by fat cat CEOs to escape the mayhem on Wall Street.

After six days of bare-knuckled negotiations on the $700 billion financial industry bailout proposed by the Bush administration, with Wall Street tottering and presidential politics intruding six weeks before the election, there was far more confusion than clarity.

An apparent breakthrough was announced with fanfare at midday by key members of Congress from both parties — but not top leaders. Wall Street cautiously showed its pleasure, with the Dow Jones industrials closing 196 points higher.

But the good news and the market close were followed by a rash of less-positive developments.

Washington Mutual Inc. was seized by the Federal Deposit Insurance Corp. in the largest failure ever of a U.S. bank, after which JPMorgan Chase & Co. Inc. came to its rescue by buying the thrift's banking assets.

And the late-afternoon White House gathering of President Bush, presidential contenders John McCain and Barack Obama, and top congressional leaders turned into what one person in the room described as "a full-throated discussion" and McCain's campaign called "a contentious shouting match."

Conservatives were in revolt over the astonishing price tag of the proposal and the hand of government that it would place on private markets.

Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee, emerged from the White House meeting to say the announced agreement "is, obviously, no agreement." McCain's campaign issued a statement saying, "the plan that has been put forth by the administration does not enjoy the confidence of the American people as it will not protect the taxpayers and will sacrifice Main Street in favor of Wall Street." The White House, too, acknowledged there was no deal, only progress.

Meanwhile a group of House GOP lawmakers circulated an alternative that would put much less focus on a government takeover of failing institutions' sour assets. This proposal would have the government provide insurance to companies that agree to hold frozen assets, rather than have the U.S. purchase the assets.

Inside the White House session, House Republican leader John Boehner announced his concerns about the emerging plan and asked that the conservatives' alternative be considered, said people from both parties who were briefed on the exchange.

Financial Services Chairman Barney Frank, the feisty Democrat who has been leading negotiations with Paulson, reacted angrily, saying Republicans had waited until the last moment to present their proposal.

McCain, who dramatically announced Wednesday that he was suspending his campaign to deal with the economic crisis, stayed silent for most of the session and spoke only briefly to voice general principles for a rescue plan.

After the session, Paulson, hoping to prevent any chance for agreement from being torpedoed, pleaded with Democratic leaders not to publicly disclose how poorly the session had gone, said three people familiar with the episode. Frank and House Speaker Nancy Pelosi responded angrily, and Paulson, in an attempt to lighten the mood, got down on one knee, said the sources who spoke on condition of anonymity, like the others, because the conversations were private.

Weary congressional negotiators then resumed working with Paulson into the night in an effort to revive or rework the proposal that Bush said must be quickly approved by Congress to stave off "a long and painful recession." They gave up after 10 p.m. EDT, more than an hour after the lone House Republican involved, Rep. Spencer Bachus of Alabama, left the room.

Talks were to resume Friday morning on the effort to bail out failing financial institutions and restart the flow of credit that has begun to starve the national economy.

The Bush administration plan's centerpiece remained for the government to buy the toxic, mortgage-based assets of shaky financial institutions in a bid to keep them from going under and setting off a cascade of ruinous events, including wiped-out retirement savings, rising home foreclosures, closed businesses and lost jobs.

The earlier bipartisan accord establishing principles and important details would have given the Bush administration just a fraction of the money it wanted up front, subjecting half the $700 billion total to a congressional veto. The treasury secretary would get $250 billion immediately and could have an additional $100 billion if he certified it was needed, an approach designed to give lawmakers a stronger hand in controlling the unprecedented rescue.

The Bush administration had already agreed to several concessions based on demands from the right and left, including that the government take equity in companies helped by the bailout and put rules in place to limit excessive compensation of their executives, according to a draft of the outline obtained by The Associated Press.

Democrat Obama and Republican McCain, who have both sought to distance themselves from the unpopular Bush, sat down with the president at the White House for the hourlong afternoon session that was striking in this brutally partisan season. By also including Congress' Democratic and Republican leaders, the meeting gathered nearly all Washington's political power structure at one long table in a small West Wing room.

"All of us around the table ... know we've got to get something done as quickly as possible," Bush declared optimistically at the start of the meeting. Obama and McCain were at distant ends of the oval table, not even in each other's sight lines. Bush, playing host in the middle, was flanked by Congress' two Democratic leaders, Pelosi and Senate Majority Leader Harry Reid.

But neither Bush, McCain nor Obama have been deeply involved so far in this week's scramble to hammer out a package. The meeting was intended more to provide bipartisan political cover for lawmakers to support a plan in the face of an angry public and their own re-election bids in six weeks.

At day's end, Frank said he told Paulson "this whole thing is at risk if the president can't get members of his own party to participate."

Layered over the White House meeting was a complicated web of potential political benefits and consequences for both presidential candidates.

McCain hoped voters would believe that he rose above politics to wade into nitty-gritty and ultimately successful dealmaking at a time of urgent crisis, but he risked being seen instead as either overly impulsive or politically craven, or both. Obama saw a chance to appear presidential and fit for duty but was also caught off guard strategically by McCain's surprising campaign gamble.

WaMu is largest U.S. bank failure

NEW YORK/WASHINGTON (Reuters) - Washington Mutual Inc was closed by the U.S. government in by far the largest failure of a U.S. bank, and its banking assets were sold to JPMorgan Chase & Co for $1.9 billion.

A man leaves a branch of Washington Mutual in the financial district of New York September 19, 2008.

Thursday's seizure and sale is the latest historic step in U.S. government attempts to clean up a banking industry littered with toxic mortgage debt. Negotiations over a $700 billion bailout of the entire financial system stalled in Washington on Thursday.

Washington Mutual, the largest U.S. savings and loan, has been one of the lenders hardest hit by the nation's housing bust and credit crisis, and had already suffered from soaring mortgage losses.

Washington Mutual was shut by the federal Office of Thrift Supervision, and the Federal Deposit Insurance Corp was named receiver. This followed $16.7 billion of deposit outflows at the Seattle-based thrift since Sept 15, the OTS said.

"With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," the OTS said.

Customers should expect business as usual on Friday, and all depositors are fully protected, the FDIC said.

FDIC Chairman Sheila Bair said the bailout happened on Thursday night because of media leaks, and to calm customers. Usually, the FDIC takes control of failed institutions on Friday nights, giving it the weekend to go through the books and enable them to reopen smoothly the following Monday.

Washington Mutual has about $307 billion of assets and $188 billion of deposits, regulators said. The largest previous U.S. banking failure was Continental Illinois National Bank & Trust, which had $40 billion of assets when it collapsed in 1984.

JPMorgan said the transaction means it will now have 5,410 branches in 23 U.S. states from coast to coast, as well as the largest U.S. credit card business.

It vaults JPMorgan past Bank of America Corp to become the nation's second-largest bank, with $2.04 trillion of assets, just behind Citigroup Inc. Bank of America will go to No. 1 once it completes its planned purchase of Merrill Lynch & Co.

The bailout also fulfills JPMorgan Chief Executive Jamie Dimon's long-held goal of becoming a retail bank force in the western United States. It comes four months after JPMorgan acquired the failing investment bank Bear Stearns Cos at a fire-sale price through a government-financed transaction.

On a conference call, Dimon said the "risk here obviously is the asset values."

He added: "That's what created this opportunity."

JPMorgan expects to incur $1.5 billion of pre-tax costs, but realize an equal amount of annual savings, mostly by the end of 2010. It expects the transaction to add to earnings immediately, and increase earnings 70 cents per share by 2011.

It also plans to sell $8 billion of stock, and take a $31 billion write-down for the loans it bought, representing estimated future credit losses.

The FDIC said the acquisition does not cover claims of Washington Mutual equity, senior debt and subordinated debt holders. It also said the transaction will not affect its roughly $45.2 billion deposit insurance fund.

"Jamie Dimon is clearly feeling that he has an opportunity to grab market share, and get it at fire-sale prices," said Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati. "He's becoming an acquisition machine."

BAILOUT UNCERTAINTY

The transaction came as Washington wrangles over the fate of a $700 billion bailout of the financial services industry, which has been battered by mortgage defaults and tight credit conditions, and evaporating investor confidence.

"It removes an uncertainty from the market," said Shane Oliver, head of investment strategy at AMP Capital in Sydney. "The problem is that markets are in a jittery stage. Washington Mutual provides another reminder how tenuous things are."

Washington Mutual's collapse is the latest of a series of takeovers and outright failures that have transformed the American financial landscape and wiped out hundreds of billions of dollars of shareholder wealth.

These include the disappearance of Bear, government takeovers of mortgage companies Fannie Mae and Freddie Mac and the insurer American International Group Inc, the bankruptcy of Lehman Brothers Holdings Inc, and Bank of America's purchase of Merrill.

JPMorgan, based in New York, ended June with $1.78 trillion of assets, $722.9 billion of deposits and 3,157 branches. Washington Mutual then had 2,239 branches and 43,198 employees. It is unclear how many people will lose their jobs.

Shares of Washington Mutual plunged $1.24 to 45 cents in after-hours trading after news of a JPMorgan transaction surfaced. JPMorgan shares rose $1.04 to $44.50 after hours, but before the stock offering was announced.

119-YEAR HISTORY

The transaction ends exactly 119 years of independence for Washington Mutual, whose predecessor was incorporated on September 25, 1889, "to offer its stockholders a safe and profitable vehicle for investing and lending," according to the thrift's website. This helped Seattle residents rebuild after a fire torched the city's downtown.

It also follows more than a week of sale talks in which Washington Mutual attracted interest from several suitors.

These included Banco Santander SA, Citigroup Inc, HSBC Holdings Plc, Toronto-Dominion Bank and Wells Fargo & Co, as well as private equity firms Blackstone Group LP and Carlyle Group, people familiar with the situation said.

Less than three weeks ago, Washington Mutual ousted Chief Executive Kerry Killinger, who drove the thrift's growth as well as its expansion in subprime and other risky mortgages. It replaced him with Alan Fishman, the former chief executive of Brooklyn, New York's Independence Community Bank Corp.

WaMu's board was surprised at the seizure, and had been working on alternatives, people familiar with the matter said.

More than half of Washington Mutual's roughly $227 billion book of real estate loans was in home equity loans, and in adjustable-rate mortgages and subprime mortgages that are now considered risky.

The transaction wipes out a $1.35 billion investment by David Bonderman's private equity firm TPG Inc, the lead investor in a $7 billion capital raising by the thrift in April.

A TPG spokesman said the firm is "dissatisfied with the loss," but that the investment "represented a very small portion of our assets."

DIMON POUNCES

The deal is the latest ambitious move by Dimon.

Once a golden child at Citigroup before his mentor Sanford "Sandy" Weill engineered his ouster in 1998, Dimon has carved for himself something of a role as a Wall Street savior.

Dimon joined JPMorgan in 2004 after selling his Bank One Corp to the bank for $56.9 billion, and became chief executive at the end of 2005.

Some historians see parallels between him and the legendary financier John Pierpont Morgan, who ran J.P. Morgan & Co and was credited with intervening to end a banking panic in 1907.

JPMorgan has suffered less than many rivals from the credit crisis, but has been hurt. It said on Thursday it has already taken $3 billion to $3.5 billion of write-downs this quarter on mortgages and leveraged loans.

Washington Mutual has a major presence in California and Florida, two of the states hardest hit by the housing crisis. It also has a big presence in the New York City area. The thrift lost $6.3 billion in the nine months ended June 30.

"It is surprising that it has hung on for as long as it has," said Nancy Bush, an analyst at NAB Research LLC.

Dance with the Star

In this image released by ABC, TV legend Cloris Leachman, right, and her partner Corky Ballas perform on the ABC celebrity dance competition, 'Dancing With The Stars,' Tuesday, Sept. 23, 2008 in Los Angeles. Another couple is expected to be eliminated during a broadcast on Wednesday


Olympian Maurice Greene left, and his partner Cheryl Burke perform on the ABC celebrity dance competition, 'Dancing With The Stars,' Tuesday, Sept. 23, 2008 in Los Angeles. Another couple is expected to be eliminated during a broadcast on Wednesday.

professional dancer Karina Smirnoff, left, and her partner celebrity chef Rocco Dispirito perform on the ABC celebrity dance competition, 'Dancing With The Stars,' Tuesday, Sept. 23, 2008 in Los Angeles. Another couple is expected to be eliminated during a broadcast on Wednesday.

In this image released by ABC, actor Ted McGinley, left, and his partner Inna Brayer perform on the ABC celebrity dance competition, 'Dancing With The Stars,' Tuesday, Sept. 23, 2008 in Los Angeles. Another couple is expected to be eliminated during a broadcast on Wednesday.

In this image released by ABC, professional dancer Kym Johnson, left, and her partner former football player Warren Sapp perform on the ABC celebrity dance competition, 'Dancing With The Stars,' Tuesday, Sept. 23, 2008 in Los Angeles. Another couple is expected to be eliminated during a broadcast on Wednesday.

volleyball player Misty May-Treanor, left, and her partner Maksim Chmerkovskiy perform on the ABC celebrity dance competition, 'Dancing With The Stars,' Tuesday, Sept. 23, 2008 in Los Angeles. Another couple is expected to be eliminated during a broadcast on Wednesday.

dancer Julianne Hough, left, and her partner, actor Cody Linley perform on the ABC celebrity dance competition, 'Dancing With The Stars,' Tuesday, Sept. 23, 2008 in Los Angeles. Another couple is expected to be eliminated during a broadcast on Wednesday.


Lance Bass, right, and his partner Lacey Schwimmer perform on the ABC celebrity dance competition, 'Dancing With The Stars,' Tuesday, Sept. 23, 2008 in Los Angeles. Another couple is expected to be eliminated during a broadcast on Wednesday.

ABC, soap opera star Susan Lucci, left, and her partner Tony Dovolani perform on the ABC celebrity dance competition, 'Dancing With The Stars,' Tuesday, Sept. 23, 2008 in Los Angeles. Another couple is expected to be eliminated during a broadcast on Wednesday

singer Toni Braxton and her partner Alec Mazo perform on the ABC celebrity dance competition, 'Dancing With The Stars,' Tuesday, Sept. 23, 2008 in Los Angeles. Another couple is expected to be eliminated during a broadcast on Wednesday.

TV personality Brooke Burke, left, and her partner Derek Hough perform on the ABC celebrity dance competition, 'Dancing With The Stars,' Tuesday, Sept. 23, 2008 in Los Angeles. Another couple is expected to be eliminated during a broadcast on Wednesday

reality TV personality Kim Kardashian, left, and her partner Mark Ballas perform on the ABC celebrity dance competition, 'Dancing With The Stars,' Tuesday, Sept. 23, 2008 in Los Angeles. Another couple is expected to be eliminated during a broadcast on Wednesday.

Cheryl Burke (L) and Kym Johnson from the television show 'Dancing with the Stars' perform during the taping of the 2008 'NCLR Alma' awards at the Civic Auditorium in Pasadena, California, August 17, 2008.

This photo released by ABC shows Jeffrey Ross, right, and Edyta Sliwinska on the set of Dancing with the Stars on Monday Sept. 22, 2008 in Los Angeles.


The five nominees in the category for outstanding reality/competition host (L-R) Jeff Probst of 'Survivor', Howie Mandel of 'Deal or No Deal', Tom Bergeron of 'Dancing with the Stars', Heidi Klum of 'Project Runway' and Ryan Seacrest of 'American Idol' are shown in this undated publicity photo. In an unprecedented move, all five have been named hosts of the '60th annual Primetime Emmy Awards'.

host and model Brooke Burke is shown in Los Angeles. Burke will compete in the new season of the celebrity dance competition, 'Dancing With The Stars,' premiering, Monday, Sept. 22, 2008, at 8:00 p.m. EDT on ABC.

singer Toni Braxton is shown in Los Angeles. Braxton will compete in the new season of the celebrity dance competition, 'Dancing With The Stars,' premiering, Monday, Sept. 22, 2008, at 8:00 p.m. EDT on ABC.

Cloris Leachman is shown in Los Angeles. Leachman will compete in the new season of the celebrity dance competition, 'Dancing With The Stars,' premiering, Monday, Sept. 22, 2008, at 8:00 p.m. EDT on ABC.

reality TV star Kim Kardashian is shown in Los Angeles. Kardashian will compete in the new season of the celebrity dance competition, 'Dancing With The Stars,' premiering, Monday, Sept. 22, 2008, at 8:00 p.m. EDT on ABC

actor Cody Linley is shown in Los Angeles. Linley will compete in the new season of the celebrity dance competition, 'Dancing With The Stars,' premiering, Monday, Sept. 22, 2008, at 8:00 p.m. EDT on ABC.

actor Ted McGinley is shown in Los Angeles. McGinley will compete in the new season of the celebrity dance competition, 'Dancing With The Stars,' premiering, Monday, Sept. 22, 2008, at 8:00 p.m. EDT on ABC.

comedian Jeffrey Ross is shown in Los Angeles. Ross will compete in the new season of the celebrity dance competition, 'Dancing With The Stars,' premiering, Monday, Sept. 22, 2008, at 8:00 p.m. EDT on ABC


celebrity chef and author Rocco DiSpirito is shown in Los Angeles. DiSpirito will compete in the new season of the celebrity dance competition, 'Dancing With The Stars,' premiering, Monday, Sept. 22, 2008, at 8:00 p.m. EDT on ABC.

singer Lance Bass is shown in Los Angeles. Bass will compete in the new season of the celebrity dance competition, 'Dancing With The Stars,' premiering, Monday, Sept. 22, 2008, at 8:00 p.m. EDT on ABC.

former NFL football player Warren Sapp is shown in Los Angeles. Sapp will compete in the new season of the celebrity dance competition, 'Dancing With The Stars,' premiering, Monday, Sept. 22, 2008, at 8:00 p.m. EDT on ABC.

soap opera actress Susan Lucci is shown on June 20, 2008 in the Hollywood section of Los Angeles. Lucci will compete in the new season of the celebrity dance competition, 'Dancing With The Stars,' premiering, Monday, Sept. 22, 2008, at 8:00 p.m. EDT on ABC.
(AP Photo/ABC, Adam Larkey)
Olympic gold-medalist Maurice Greene is shown. Greene will compete in the new season of the celebrity dance competition, 'Dancing With The Stars,' premiering, Monday, Sept. 22, 2008, at 8:00 p.m. EDT on ABC.
(AP Photo/ABC, Craig Sjodin)

In this image released by ABC, Olympic Beach Volleyball gold medalist Misty May-Treanor is shown in a rehearsal studio, Aug. 25, 2008 in Los Angeles. May-Treanor partners with Maksim Chmerkovskiy, for the new season of the celebrity dance competition, 'Dancing With The Stars,' premiering Monday, Sept. 22 at 8:00 p.m. EDT.

In this image released by ABC, Olympic Beach Volleyball gold medalist Misty May-Treanor is shown in a rehearsal studio with her partner Maksim Chmerkovskiy, Aug. 25, 2008, in Los Angeles. The new season of the celebrity dance competition, 'Dancing With The Stars,' premieres Monday, Sept. 22 at 8:00 p.m. EDT.
(AP Photo/ABC, Karen Neal)

Olympic Beach Volleyball gold medalist Misty May-Treanor is shown in Los Angeles. May-Treanor partners with Maksim Chmerkovskiy, for the new season of the celebrity dance competition, 'Dancing With The Stars,' premiering Monday, Sept. 22 at 8:00 p.m. EDT.
(AP Photo/ABC, Craig Sjodin)

The five nominees in the category for outstanding reality/competition host (L-R) Ryan Seacrest of 'American Idol', Heidi Klum of 'Project Runway', Tom Bergeron of 'Dancing with the Stars', Jeff Probst of 'Survivor' and Howie Mandel of 'Deal or No Deal', are shown in this undated publicity photo. In an unprecedented move, all five have been named hosts of the '60th annual Primetime Emmy Awards' which will be held in Los Angeles on September 21

Tom Bergeron poses on the press line at the 'Dancing With The Stars' panel discussion in Los Angeles.
(AP Photo/Dan Steinberg, file)
In this photo released by Showtime on Wednesday, Sept. 10, 2008, Kym Johnson, center, of
(AP Photo/Showtime, John Filo)

2nd celebrity booted from 'Dancing with the Stars'

LOS ANGELES - Ted McGinley from "Married with Children" has gotten a divorce from "Dancing with the Stars." The actor and his professional partner, Inna Brayer, were eliminated Wednesday from ABC's dancing competition.

In this image released by ABC, actor Ted McGinley, left, and his partner Inna Brayer perform on the ABC celebrity dance competition, 'Dancing With The Stars,' Tuesday, Sept. 23, 2008 in Los Angeles. Another couple is expected to be eliminated during a broadcast on Wednesday.

The pair received a score of 19 out of 30 from the show's judges Tuesday following their mambo routine. McGinley was sent packing after his score — the third-lowest — was combined with viewer votes.

"It's been a lot of fun," McGinley said after his ouster. "You know, I know there's a lot of guys sitting at home with a beer in their hand having a little chuckle at me. You know what? Thank you for that. I appreciate it. I'm one of the guys. I guess I'll always be one of the guys. Some of us aren't meant to dance, I guess."

Comedian Jeffery Ross and partner Edyta Sliwinska were dismissed Tuesday after the remaining couples performed a new dance.

Model-actress Brooke Burke dominated the dancing competition Tuesday, scoring a 26 for a quick-step routine. The former host of E!'s "Wild On" and dancing partner Derek Hough also claimed the top score during Monday's premiere.

The celebrities remaining in the competition include celebrity chef Rocco DiSpirito; former National Football League star Warren Sapp; TV personalities Burke and Kim Kardashian; singers Lance Bass and Toni Braxton; Olympic gold medalists Maurice Greene and Misty May-Treanor; and actresses Cloris Leachman, Cody Linley and Susan Lucci.

Plan's Basic Mystery: What's All This Stuff Worth?

What would you pay, sight unseen, for a house that nobody wants, on a hard-luck street where no houses are selling?

That question is easy compared to the one confronting the Treasury Department as Washington works toward a vast bailout of financial institutions. Treasury Secretary Henry M. Paulson Jr. is proposing to spend up to $700 billion to buy troubled investments that even Wall Street is struggling to put a price on.

A big concern in Washington — and among many ordinary Americans — is that the difficulty in valuing these assets could result in the government's buying them for more than they will ever be worth, a step that would benefit financial institutions at taxpayers' expense.

Anyone who has tried to buy or sell a house when the market is falling, as it is now, knows how difficult it can be to agree on a price. But valuing the securities that the Treasury aims to buy will be far more difficult. Each one of these investments is tied to thousands of individual mortgages, and many of those loans are going bad as the housing market worsens.

"The reality is that we are not going to know what the right price is for years," said Andrew Feltus, a bond portfolio manager at Pioneer Investments, a mutual fund firm based in Boston. "It might be 20 cents on the dollar or 60 cents on the dollar, but we won't know for years."

While prices of most stocks are no mystery — they flicker across PCs and televisions all day — the troubled investments are not traded on any exchange. The market for them is opaque: traders do business over the telephone, and days can go by without a single trade.

Not only that, many of these instruments are extremely complex. Consider the Bear Stearns Alt-A Trust 2006-7, a $1.3 billion drop in the sea of risky loans. Here's how it worked:

As the credit bubble grew in 2006, Bear Stearns, then one of the leading mortgage traders on Wall Street, bought 2,871 mortgages from lenders like the Countrywide Financial Corporation.

The mortgages, with an average size of about $450,000, were Alt-A loans — the kind often referred to as liar loans, because lenders made them without the usual documentation to verify borrowers' incomes or savings. Nearly 60 percent of the loans were made in California, Florida and Arizona, where home prices rose — and subsequently fell — faster than almost anywhere else in the country.

Bear Stearns bundled the loans into 37 different kinds of bonds, ranked by varying levels of risk, for sale to investment banks, hedge funds and insurance companies.

If any of the mortgages went bad — and, it turned out, many did — the bonds at the bottom of the pecking order would suffer losses first, followed by the next lowest, and so on up the chain. By one measure, the Bear Stearns Alt-A Trust 2006-7 has performed well: It has suffered losses of about 1.6 percent. Of those loans, 778 have been paid off or moved through the foreclosure process.

But by many other measures, it's a toxic portfolio. Of the 2,093 loans that remain, 23 percent are delinquent or in foreclosure, according to Bloomberg News data. Initially rated triple-A, the most senior of the securities were downgraded to near junk bond status last week. Valuing mortgage bonds, even the safest variety, requires guesstimates: How many homeowners will fall behind on their mortgages? If the bank forecloses, what will the homes sell for? Investments like the Bear Stearns securities are almost certain to lose value as long as home prices keep falling.

"Under the current circumstances it's likely that you are going to take a loss on these loans," said Chandrajit Bhattacharya, a mortgage strategist at Credit Suisse, the investment bank.

The Bear Stearns bonds are just one example of the kind of assets the government could buy, and they are by no means the most complicated of the lot. Wall Street took bonds like those of Bear Stearns and bundled and rebundled them into even trickier investments known as collateralized debt obligations, or C.D.O.'s

"No two pieces of paper are the same,"said Mr. Feltus of Pioneer Investments.

On Wall Street, many of these C.D.O.'s have been selling for pennies on the dollar, if they are selling at all. In July, Merrill Lynch, struggling to bolster its finances, sold $31 billion of tricky mortgage-linked investments for 22 cents on the dollar. Last November, Citadel, a large hedge fund in Chicago, bought $3 billion of mortgage securities and other investments for 27 cents on the dollar.

But Citigroup, the financial giant, values similar investments on its books at 61 cents on the dollar. Citigroup says its C.D.O.'s are relatively high quality because they were created before lending standards weakened in 2006.

A big challenge for Treasury officials will be deciding whether to buy the troubled investments near the values at which the banks hold them on their books. That would help minimize losses for financial institutions. Driving a hard bargain, however, would protect taxpayers.

"Many are tempted by a strategy of trying to do both things at once," said Lawrence H. Summers, a former Treasury secretary in the Clinton administration. As a hypothetical example, Mr. Summers suggested that an institution could have securities on its books at $60, but the current market price might only be $30. In that case, the government might be tempted to come in at about $55.

Many financial institutions are so weak that they must sell their troubled assets at prices near the value on their books, Carlos Mendez, a senior managing director at ICP Capital, an investment firm that specializes in credit markets. Anything less would eat into their capital.

"Depending on your perspective on the economy, foreclosure rates and home prices, the market may eventually reflect that price. But most buyers are not willing to make that bet right now," he said. "And that's why we have these low prices."

Ben S. Bernanke, the chairman of the Federal Reserve, told Congress on Tuesday that the government should avoid paying a fire-sale price, and pay what he called the "hold-to-maturity price," or the price that investors would bid if they expected to keep the bond till it was paid off.

The government would buy the troubled investments with the intention of eventually selling them back to the market when prices recover.

The Treasury has suggested it might conduct reverse auctions to determine the price for securities that are not trading in the market.

Unlike in a traditional auction in which would-be buyers submit bids to the seller, in a reverse auction the buyer solicits bids from would-be sellers. Often, the buyer agrees to pay the second-highest bid submitted to encourage sellers to compete by lowering their bids for all the assets submitted. The buyer often also sets a reserve price and refuses to pay any more than that price.

But Mr. Paulson told Congress on Tuesday that the government would use many other means in addition to auctions, suggesting that it would exercise wide discretion over the final prices to be paid.

Financial institutions will have an incentive to sell their worst assets to the government, a risk that the Treasury will have to guard against, said Robert G. Hansen, senior associate dean at the Tuck School of Business at Dartmouth College.

"I am worried that the people who are going to offer the securities to the government will be the ones that have the absolute worst toxic waste," Professor Hansen said. Even so, he added, the government could actually make a profit on its purchases — provided the Treasury buys at the right prices. Richard C. Breeden, a former chairman of the Securities and Exchange Commission, said the auctions could thaw parts of the markets that have been frozen since late last year.

"One of the problems that many institutions are having is finding any bid for some of these assets, even though they are not without value," said Mr. Breeden, who is chairman and chief executive of Breeden Capital Management, an investment firm in Greenwich, Conn.

"What are these assets worth?" asked Mr. Breeden. "Sometimes, because of fear or extreme uncertainty in the markets, you get in a situation in which there are no bids at all, or at least no realistic bids."