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 a late-afternoon White House summit bringing together President Bush, presidential contenders John McCain and Barack Obama, and top congressional leaders, described as "a full-throated discussion" by one person in the room and "a contentious shouting match" by McCain's campaign, broke up with conflicts in plain view.
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. They spoke on condition of anonymity because the session was private.
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.
Meanwhile 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.
Weary congressional negotiators then resumed working into the night, joined by Treasury Secretary Henry Paulson in an effort to revive or rework the proposal that Bush said must be quickly approved by Congress to stave off potentially "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, House Speaker Nancy 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 successful, nitty-gritty 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 gamble in saying he was suspending his campaigning and asking to delay Friday night's debate to focus on the crisis.
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Associated Press writers Deb Riechmann, Martin Crutsinger, Christopher Wills and Beth Fouhy in Washington and researcher Judy Ausuebel in New York contributed to this story.
