Bush: Bail Out Economy, or Face 'Long and Painful Recession'

Congressional negotiators emerged today and announced they had reached a deal in principal on President Bush's $700 billion proposal to buy up a mountain of Wall Street debt that has threatened to torpedo the U.S. economy.

Led by Sen. Chris Dodd, D-Conn., nine members of the House and Senate announced that the deal was struck on several key items that would form the framework for the agreement the Bush administration has argued was needed immediately.

Dodd told reporters they had reached a" fundamental agreement on a set of principals."

The four Republicans and five Democrats said the package will include an oversight board to monitor the bailout, protection for taxpayers and a cap on the compensation for executives of companies whose debt will be purchased by the federal government.

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A source told ABC News that there was a problem resolving the issue of how to help homeowners facing foreclosure. Democrats want to rewrite bankruptcy laws to enable judges to renegotiate mortgages; Republicans do not.

The broad agreement on principals came just a few hours before Bush was to meet at the White House with presidential rivals Barack Obama and John McCain.

The deal is not yet finalized. There are details still to be worked out and the lawmakers said it had to be agreed to by their caucuses and the Treasury Department.

It also came a day after Bush went before the nation to argue for his administration's proposed $700 billion bailout of the financial system, which had been met with skepticism by some in Congress and the American public.

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"Our entire economy is in danger," Bush said, urging Congress to take quick action and outlining his rationale for the bailout.

Failing to pass a rescue plan, Bush said, would create the risk of a "long and painful recession" -- meaning more foreclosures, lost jobs, declining home values, business failures, stock losses and difficulty getting loans.

Bush tried to rally support for the negotiations in his address to the nation Wednesday night.

"I'm a strong believer in free enterprise, so my natural instinct is to avoid government intervention," Bush said. "I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course.

"But these are not normal circumstances," he added. "The market is not functioning properly. There has been a widespread loss of confidence, and major sectors of America's financial system are at risk of shutting down. The government's top economic experts warn that without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold."

White House spokeswoman Dana Perino said the president decided to make the 12-minute address because he wanted to tell Americans directly about the severity and stakes of the financial emergency, which she described as a "once-in-a-century crisis in our financial markets."

Bush felt the public case had to be made that the financial crisis is about "Main Street, not Wall Street," and the "costs of not acting are far greater than the costs of acting," a senior White House official told ABC News' George Stephanopoulos.

Bush spoke after Secretary of the Treasury Henry Paulson and Federal Reserve Chairman Ben Bernanke continued to press for the administration's plan today before Congress.

"This entire proposal is about benefiting the American people," Paulson said, "because today's fragile financial system puts their economic well being at risk."

However, if calls to Sen. Jim DeMint, R-S.C., and other members of Congress are any indication, the American people may not yet be on board with the idea of a bailout, ABC News' Jake Tapper reported. Calls into DeMint's office before the speech were almost entirely negative.

"The administration is working on the other side, scaring people into doing something," said DeMint, who opposes the current plan. "I'm convinced this is a trillion-dollar Band-Aid to get us past the election."

"I do believe we must act and we must act soon," said Sen. Charles Schumer, D-N.Y. "But let us be clear, Americans are furious."

Time for Bush to 'Take Ownrship' of Bailout Plan

In his speech, Bush acknowledged the difficult politics of a $700 billion bailout.

"I know that an economic rescue package will present a tough vote for many members of Congress," Bush said. "It is difficult to pass a bill that commits so much of the taxpayers' hard-earned money. I also understand the frustration of responsible Americans who pay their mortgages on time, file their tax returns every April 15, and are reluctant to pay the cost of excesses on Wall Street.

"But given the situation we are facing, not passing a bill now would cost these Americans much more later," Bush said.

Highlighting the stakes ahead of Bush's speech, a senior administration official told Stephanopoulos, "This is a bullet you only fire once."

Bush skipped a planned GOP fundraiser in Florida to return to the White House before noon to focus on the financial rescue package.

Senate Majority Leader Harry Reid, D-Nev., said from the Senate floor today before Bush's speech that it's about time Bush spoke on the bailout.

"This is not the Paulson plan," Reid said. "This is not the Bernanke plan. This is not the Congress plan. This is the Bush plan. It's time for him to take ownership and demonstrate leadership. He's our president, it's time for him to realize that the buck stops with him."

Officials on both sides of the political aisle said that the bailout plan, in its current form, is not moving toward approval.

Democrats have said they are concerned the plan needs to do less to reward Wall Street bigwigs and more to help ordinary Americans. Some Republicans say they are hesitant to accept such a huge government stake in the U.S. economy.

McCain, Obama Issue Joint Statement on Bailout

However, presidential nominees Sen. John McCain, R-Ariz., and Sen. Barack Obama, D-Ill., this evening, issued a joint statement on the need for a bailout.

"The American people are facing a moment of economic crisis," the joint statement read. "No matter how this began, we all have a responsibility to work through it and restore confidence in our economy. The jobs, savings, and prosperity of the American people are at stake.

"Now is a time to come together -- Democrats and Republicans -- in a spirit of cooperation for the sake of the American people," McCain and Obama said. "The plan that has been submitted to Congress by the Bush administration is flawed, but the effort to protect the American economy must not fail. This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe. Now is our chance to come together to prove that Washington is once again capable of leading this country."

Congressional leaders have been working all week to refine the administration's bailout proposal, and House Speaker Nancy Pelosi, D-Calif., and Minority Leader John Boehner, R-Ohio, this evening also released a joint statement that they were trying "to make the proposal more accountable to taxpayers."

"Working in a bipartisan manner, we have made progress," the statement said. "We agree that key changes should be made to the administration's initial proposal. It must include basic good-government principles, including rigorous and independent oversight, strong executive compensation standards, and protections for taxpayers."

Bush believes a framework deal is getting close and Congress may get to vote late in the week, Stephanopoulos reported.

McCain said this afternoon he hoped to help bridge the divide as he announced a plan to "suspend" his campaign for several days -- meaning he would curtail rallies, pull advertising and seek to postpone a presidential debate scheduled for Friday in Mississippi so he could return to the Senate in Washington to help complete work on the bailout plan.

"I am confident that before the markets open on Monday we can achieve consensus on legislation that will stabilize our financial markets, protect taxpayers and homeowners, and earn the confidence of the American people," McCain said, according to his prepared remarks. "All we must do to achieve this is temporarily set politics aside, and I am committed to doing so."

The McCain campaign suggested rescheduling Friday's debate on foreign policy for Thursday, Oct. 2, in turn pushing back a vice presidential debate scheduled for that date.

Democratic leaders initially told McCain he was not needed in Washington.

"It would not be helpful at this time to have them [the presidential candidates] come back during these negotiations and risk injecting presidential politics into this process or distract important talks about the future of our nation's economy," Reid said in a statement. "If that changes, we will call upon them."

Obama rejected McCain's idea to put the campaign on hold, suggesting it is a president's job to multi-task.

"I believe that we should continue to have the debate," Obama said. "It's my belief that this is exact time when the American people need to hear from the person who in approximately 40 days will be responsible for dealing with this mess. And I think that it is going to be part of the president's job to deal with more than one thing at once."

But Obama added he would be available if needed in Washington. And late today, Bush invited Obama to attend a meeting on the bailout Thursday afternoon in Washington, and Obama accepted the invitation, sources told ABC News' Jake Tapper.

Administration Urges Congress to Pass Bailout Quickly

For the second day in a row, Paulson and Bernanke went to Capitol Hill to make the administration's case for why Congress must pass the bailout plan.

"We have proposed a program to remove troubled assets from the system -- a program we analyzed internally for months, and had hoped would never be necessary," Paulson told the House Committee on Financial Services.

"Under our proposal, we would use market mechanisms available to small banks, credit unions, and thrifts, across the country not just big banks," Paulson said.

Both men have insisted that Congress must approve the plan quickly, but mindful of the hostility they encountered in the Senate Tuesday, Bernanke suggested that the mortgage-backed securities bought with taxpayer money will likely gain some of their value back.

"$700 billion is an extraordinary amount of money, but it is not an expenditure. It is an acquisition of assets." Bernanke said, arguing even though the assets are currently considered toxic, they will gain value as the economy recovers.

"If if there is a loss it will be far less, some percentage of that," he said.

Bernanke stressed the perilous situation of the nation's economy, which is facing the biggest financial turmoil since the Great Depression.

"Stabilization of our financial system is an essential precondition for economic recovery," he said.

ABC News' Jennifer Parker contributed to this report.