Congress leaders toil to revive the bailout

Pledge to overcome divide; Senate expects vote tonight

President Bush spoke from the Diplomatic Reception Room at the White House yesterday, urging congressional passage of the $700 billion financial bailout plan. ''We're at a critical moment for our economy,'' the president said. (Kristoffer Tripplaar/Pool/ Bloomberg News)

WASHINGTON - Congressional leaders, alarmed by record losses in US financial markets and instability worldwide, worked publicly and behind the scenes yesterday to resurrect President Bush's $700 billion bailout plan, pledging to set aside political differences and send a bill to the president's desk before the end of the week.

The salvage operation seemed especially difficult since an unusual alliance of conservative Republican and liberal Democrats helped defeat the bill in the House on Monday. But the ensuing plunge on Wall Street injected a new sense of urgency to solve the biggest financial crisis in generations.

Senate leaders announced last night that their chamber plans to vote on a version of the bill this evening. It is expected to include the sweetener of raising the insurance limit on individual bank deposits from $100,000 to $250,000 to help small business owners and avert runs on banks by fearful customers.

Both John McCain and Barack Obama endorsed increasing the deposit guarantee after talking separately to the president from the campaign trail. Several influential lawmakers - including House Speaker Nancy Pelosi, a Democrat, and Representative John Boehner, the top Republican - signaled their approval as well, and the Federal Deposit Insurance Corp. said yesterday it will seek permission to temporarily raise the limit. Aides to House Republicans said the FDIC proposal might draw some conservative Republicans who voted against the package on Monday.

Some lawmakers floated another proposal to persuade House opponents to reconsider - a change to complex accounting rules that now require financial institutions to adjust the value of their assets to reflect current market prices, even if they plan to hold the assets for years.

Some House Republicans say those rules undermined banks, forcing them to report huge paper losses on mortgage-backed securities and unnecessarily weakening confidence in them. (Federal regulators issued some bank-friendly clarifications to those rules yesterday, and said more detailed guidance is coming. )

The flurry of activity on Capitol Hill spurred the Dow Jones industrial average to a nearly 500-point surge yesterday, a rally that partly offset Monday's 778-point drop - the biggest one-day loss in years.

Analysts said while bargain hunters were scooping up stocks, the rise reflected investors' confidence that Congress will come to the rescue.

Before the US markets opened yesterday morning, Bush made his third high-profile appeal for a bill allowing Treasury Secretary Henry Paulson to buy up bad mortgage-related debt from shaky Wall Street firms. Unlike his previous statements, however, the president focused on the impact on the everyday lives of consumers, reframing the issue away from the deeply unpopular notion that reckless financial corporations are being rescued at taxpayer expense.

"We're at a critical moment for our economy, and we need legislation that decisively address the troubled assets now clogging the financial system, helps lenders resume the flow of credit to consumers and businesses, and allows the American economy to get moving again," Bush said. "The dramatic drop in the stock market that we saw yesterday will have a direct impact on the retirement accounts, pension funds, and personal savings of millions of our citizens. And if our nation continues on this course, the economic damage will be painful and lasting."

In contrast to the partisan finger-pointing that followed the stunning 228-to-205 repudiation on Monday, both Republicans and Democrats yesterday pledged cooperation and immediate action.

"This financial crisis is going to be dealt with, and it's going to be dealt with by Congress this week," said Senator Mitch McConnell of Kentucky, the Senate's top Republican. "No action is not a solution. We're going to get it done, and we're going to get it done this week."

Pelosi and Senate majority leader Harry Reid of Nevada echoed that vow.

"The consequences of yesterday's vote - a historic drop in the stock market and the loss of $1.2 trillion in savings, investments, and retirement funds - had a major impact on American families, small businesses, and others that demonstrated the imperative for congressional action," they wrote to Bush. "We must continue our bipartisan efforts of the past two weeks to pass a comprehensive bill to help stabilize our financial system and protect the American taxpayer."

The crisis emerged as a major issue early last week, when, after a series of major US banks and brokerage firms collapsed or were bought out, Bush told lawmakers Paulson needed the $700 billion - and authority to spend it at his discretion - to clean up the mess and avert a US economic meltdown. Congress was furious, but leaders in both chambers struck a tentative deal, attaching conditions and oversight to Bush's proposal. The rank-and-file, however, rejected it after hearing from angry constituents opposed to the bailout.

With the House in recess until tomorrow for the Jewish New Year, key senators and representatives continued to work on a deal yesterday as business lobbyists regrouped to push for the bailout package.

The Senate is expected to reconvene after sunset today, when the holiday ends.

"The last thing we need is to not have this work again," Senator Christopher Dodd, a Connecticut Democrat and chairman of the Senate Banking Committee.

Though Dodd said many House members are having "second thoughts" about defeating the bill, there were signs yesterday that any bill that adds a significant amount to the federal debt will still be a tough sell among those who voted no on Monday.

Other critics of the bill say it failed to address the root problem: desperate homeowners saddled with mortgages they can't pay.

A group of liberal Democrats, backed by unions, proposed an alternative measure calling for more oversight by the Securities and Exchange Commission over Wall Street and a $61 billion stimulus package to aid working families.

Representatives John Tierney and William Delahunt, both Democrats from Massachusetts who helped defeat the package, said yesterday they want to give bankruptcy courts the power to help people facing foreclosure by rewriting their mortgages.

"The whole problem with Paulson's plan is that it is based on the wrong premise," Tierney said. "If they wanted to get to the crux of the matter, they would have targeted it at the mortgages."

Tierney also blamed the White House, which warned of disaster if its plan was not passed immediately - even though it spent weeks crafting it before sharing it with Congress. That created a self-fulfilling prophesy, he said, triggering Monday's market nose-dive.

Delahunt said he was confident Congress will find a solution, especially now that lawmakers are taking more time to improve it.

"The American people sent a message to the administration and to Wall Street, loudly and clearly," said Delahunt. "We rushed to war, let's not rush this. Let's do it thoughtfully. Let's do it with all due speed, but in a responsible way. This is simply too important not to get it right and I think we can get it right. "

Susan Milligan of the Globe staff contributed to this report.