Rank-and-file Members on both ends of the political spectrum fearing a voter backlash are resisting the deal between Congressional leaders and the White House for a $700 billion Wall Street bailout package.
Negotiations between the White House and House and Senate leaders hit snags Monday on the policy and politics front.
House Minority Leader John Boehner (R-Ohio) has urged Republicans to back the bailout to prevent a financial collapse and urged Democrats to avoid packing it with add-ons.
And Democrats do not want to be seen as blocking an economic rescue.
But leaders in both parties also faced insurrections, as Rep. Mike Pence (R-Ind.) sought to rally Republicans against the bailout.
Nationalizing every bad mortgage in America is not the answer, Pence said in a letter to his colleagues. We should demand consideration of free market alternatives to massive government spending and we should fight to pay for the solution through budget cuts and reform instead of more debt or taxes.
Rep. Brad Sherman (D-Calif.) also was organizing a group seeking to put numerous conditions on the new fund, including the creation of a three-person panel that would have the authority to veto purchases.
Why should the Department of the Treasury have total carte blanche? Sherman asked. This is just a license to hand out money in return for trash. Cash for trash.
Divisions among Democrats were palpable Monday, as Senate Banking, Housing and Urban Affairs Chairman Chris Dodd (D-Conn.) and House Financial Services Chairman Barney Frank (D-Mass.) worked on two different bills and the two chairmen appeared not to be talking to each other about what would pass in their chambers.
Dodd said Monday that Franks decision to begin negotiating with Treasury Secretary Henry Paulson before having talks with Senate Democrats could cause more problems than it solves.
Its a risky way to proceed in my view. Its far better to spend your time and find out how your colleagues feel over here, Dodd said. My approach has always been before you negotiate with the White House always get your act together up here. … Announcing youve got a deal that doesnt pass muster with your colleagues youre running into a buzz saw.
Dodd said Mondays volatility on Wall Street was more the result of the unrealistic expectation that a deal would be announced Monday than a reaction to Democrats decision to call for more oversight. A speedy announcement that also gets rejected tell me how the markets going to react to that, Dodd said.
Dodd said his initial attempts to negotiate with Frank and Paulson ran into opposition from his fellow Senate Democrats.
Still, Dodd acknowledged that he would not likely get all the taxpayer protections and assistance for homeowners that he is asking for.
I realize at the end were going to have something pared down. Its not going to be as much as I want or something someone else would want. But thats how it works, he said.
Democrats were generally united in pushing for taxpayer protections, an oversight committee and controls on bank executives compensation, while also angling for leverage to pass a $50 billion stimulus package and other measures long resisted by Republicans.
Frank and his staff had been working throughout the weekend on the legislation and remain committed to getting it done quickly. We understand that we have to do it, Frank said.
But Democrats vowed not to approve a blanket request for cash granting the Treasury secretary unlimited power to spend the $700 billion without strings attached.
Democrats want to require companies that unload their bad debt on the government to provide warrants to get equity in the companies at a later date if they prosper.
Democrats are also crafting provisions to limit golden parachutes and salaries for financial company executives whose companies participate in the bailouts, potentially forcing them to surrender millions in compensation.
Paulson has warned that making the program too punitive could dissuade companies from participating, but Democrats are adamant that executives not profit from their failures.
Republicans remain dead set against a Democratic proposal to allow bankruptcy judges to adjust mortgages as a way to slow the wave of foreclosures. It could end up as a sacrificial bargaining chip.
A consensus appeared to be coming around on some provisions, including the creation of an oversight board that would report to Congress but not have any operational role.
Frank said broader regulations of the financial markets will come later. Frank, who said he hoped to work out an agreement with Dodd so both chambers had identical bills, pointed out that the kinds of risky financial products at the heart of the financial crisis are no longer being sold, so lawmakers have some time to put in place new regulations.
But some rank-and-file Democrats dont want to wait and want at least some fast-track provisions to prevent Senate filibusters in the next Congress against legislation regulating the financial markets.
One senior Senate Democratic aide said the White House would be forced to accept several changes to its plan. They certainly started off asking for the sun, moon and stars, the aide said. So we should be able to get something substantive.
Dodd put a strong emphasis on todays committee hearing with Paulson, Federal Reserve Chairman Ben Bernanke, Securities and Exchange Chairman Christopher Cox and Federal Housing Finance Agency Director James Lockhart. Democrats and Republicans will have an opportunity to gauge the administration willingness to make changes to its initial proposal.
Divisions remain between those who wanted to accept the Treasurys plan with few changes and those who felt the administrations proposal needed further scrutiny.
Sen. Mel Martinez (R-Fla.) argued that Congress must accept Treasurys proposal while changing it only on the margins. Similarly, Sen. Charles Schumer (D-N.Y.) said he felt the Treasurys proposals should remain largely untouched, but he noted, There are ways that we can hopefully in a bipartisan way make them better.
But Sen. Bob Corker (R-Tenn.) expressed deep skepticism of the administration plan. Corker said he has even deeper reservations after meeting with Paulson and Bernanke this weekend.
What troubled me was the inability to answer specific questions. So obviously a concern is that this is in fact being done on the fly there are lots of unanswered questions, Corker said. What bothers me right now is theres not enough challenging of the concept. Its more OK, this is the concept and lets fiddle with the edges of it.
But Frank, who had talked about the concept of buying up bad debt weeks before Paulson and Bernanke embraced it, said many of the troubled assets are likely worth more than the market currently values them at because of the depressed psychology of the market, and if the government holds on to them for a sufficient period of time, it has a very good chance of making money.
Jennifer Bendery contributed to this report.