MASSIVE BAILOUT GETS EVEN BIGGER

WASHINGTON - The Bush administration on Saturday formally proposed to Congress what could become the largest financial bailout in U.S. history, requesting virtually unfettered authority for the Treasury to buy up to $700 billion in mortgage-related assets from financial institutions based in the United States.

The proposal was stunning for its eye-popping cost -- $200 billion higher than lawmakers had been told Friday to expect -- but also for its stark simplicity: It was just 2 1/2 pages long.

To accommodate the bailout, the proposal would raise the national debt ceiling from $10.6 trillion to $11.3 trillion. And it would place no restrictions on the administration other than requiring semiannual reports to Congress, allowing the Treasury to buy and resell mortgage debt as it sees fit.

"It's a big-picture package, because it's a big problem," President Bush said. "The risk of doing nothing far outweighs the risk of the package."

Staff members from the Treasury Department and the House Financial Services and Senate banking committees immediately began meeting on Capitol Hill, where negotiations were likely to be complicated but quick. The White House hopes for a deal with Congress by the time markets open Monday; top lawmakers say they would push to enact the plan as early as the coming week.

The plan, an ambitious effort to transfer the bad debts of Wall Street into the obligations of American taxpayers, was put forward after a series of bold interventions on behalf of ailing private firms seemed unlikely to prevent a crash of world financial markets.

A $700-billion expenditure on distressed mortgage-related assets would be roughly what the country has spent in direct costs on the Iraq war and more than the Pentagon's total yearly budget appropriation. It represents more than $2,000 for every man, woman and child in the United States.

It is unclear how the new spending would affect the annual deficit, which is already at near-record levels. Taken together with Treasury's promise to spend up to $200 billion to keep Fannie Mae and Freddie Mac solvent, budget experts said the broader rescue plan could easily leave the next president facing a budget hole that approaches 6 percent of the overall economy -- a tide of red ink not seen since the Reagan administration.

Congress' turn

While the administration sent over a streamlined proposal, it is unlikely to stay at just 2 1/2 pages.

Key Democratic lawmakers have made clear that they want to include at least some assurance that the administration would move aggressively to put into effect a program to help hundreds of thousands of troubled borrowers at risk of foreclosure.

The government must bail out the financial system "because if we don't, it will have a tremendous impact on American consumers, homeowners, taxpayers and the rest," House Speaker Nancy Pelosi, D-Calif., said in San Francisco.

But, she added, "We cannot deal with this unless this bailout helps families stay in their homes."

The top Republican in the House also expressed reservations about the plan. "We need to do everything possible to protect the taxpayers from the consequences of a broken Washington," Rep. John Boehner of Ohio said.

But he also warned against efforts to load up the legislation with additional provisions that would require debate. "Efforts to exploit this crisis for political leverage or partisan quid pro quo will only delay the economic stability that families, seniors, and small businesses deserve," he said.

Candidates cautious

In Florida, Sen. Barack Obama of Illinois, the Democratic presidential nominee, said he would press for a broader economic stimulus initiative to be part of the bailout plan. In Daytona Beach, Fla., he told voters, "We have to make sure that whatever plan our government comes up with works not just for Wall Street, but for Main Street."

He added: "We have to make sure it helps folks cope with rising prices, and sparks job creation, and helps homeowners stay in their homes. That's the kind of help folks need right now."

Mindful of such sentiments, not just by Obama but by his rival, Sen. John McCain of Arizona and other Republicans, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke held a series of conference calls with members of Congress on Friday to begin selling them on the proposal, and to assure them that action was needed not just to help Wall Street but everyday Americans as well.

They emphasized that the risk of steep declines in worldwide markets posed a grave risk to all Americans, especially their retirement plans and college savings for children, but also their access to consumer credit including auto loans.

Bernanke, for instance, pointed out that many Americans have savings invested in money market funds, which last week suddenly became at risk of unexpected losses.

It was clear after those conversations that lawmakers were roughly divided into four groups. Republicans most supportive of the administration were in favor of approving the plan as swiftly as possible and with relatively few changes.

Some Democrats, including the lawmakers most directly involved in legislative efforts to address the foreclosure crisis, were adamant about including provisions to promote government action to stabilize real estate prices and help troubled borrowers refinance their mortgages into more stable and affordable loans.

Still another group of Democrats was pushing for a wider stimulus package, perhaps including an increase in unemployment benefits and investments in infrastructure projects, including bridges and roads, that would help to create jobs.

A fourth, smaller group of lawmakers was highly critical and in some cases adamantly opposed to the plan. That group included Sen. Jim Bunning, R-Ky., and Sen. Bernard Sanders, I-Vt.

"The free market for all intents and purposes is dead in America," Bunning declared on Friday. "The action proposed today by the Treasury Department will take away the free market and institute socialism in America. The American taxpayer has been misled throughout this economic crisis. The government on all fronts has failed the American people miserably."

Short on details

It is far from clear how much distressed debt the government will actually end up purchasing under the plan, though it seemed likely that the $700-billion figure was large enough to send a reassuring message to the jittery markets. There are estimates that firms are carrying up to $1 trillion or more in bad mortgage-related assets.

Even as congressional staff members began to scour the administration proposal, a host of questions remained.

The plan would limit the Treasury's ability to buy mortgage-related assets "from any financial institution having its headquarters in the United States."

That would seem to preclude the administration from buying assets from firms such as UBS, the giant Swiss bank, which has a huge stake in American mortgage-backed securities.

It also would exclude foreign-based banks and hedge funds from taking part in the program, although U.S.-based hedge funds, which invest on behalf of the ultra-wealthy, would be able to participate.

On Saturday, meanwhile, administration officials reportedly pressed their counterparts in Japan, Germany, the United Kingdom and elsewhere to establish similar programs to rescue their own troubled firms, recognizing that complex interconnections among financial institutions have created a global crisis that the United States cannot solve alone.

An official at the Bank of England who spoke on condition of anonymity said the bank has been in constant contact with its U.S. counterparts to try to win a "global response to a global problem." The European Central Bank declined to comment.

The Washington Post, Associated Press and McClatchy News Service contributed to this report.