Federal rescue plan takes shape

Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said the proposal was most likely to grant the Treasury the authority to buy up bad debt, and not create a stand-alone agency along the lines of the Resolution Trust Corp., which was formed in 1989 to sell off the assets of failed savings and loans. The primary reason, he said, is that the Treasury could move more quickly to snap up troubled assets.

"What we're talking about now is the Treasury Department probably buying up paper, securities, bad debt," Frank said in an interview on C-SPAN. "There's not as much need for a separate entity, and there's the speed factor."

White House Economic Council Director Keith Hennessey said the administration was not using the RTC as its model.

"The RTC was an organization that was buying assets or taking assets and disposing of them from institutions after they had failed," Hennessey said at a White House news conference. "What we're talking about here is institutions which are still operating and going in and providing liquidity to their bad assets on their balance sheet."

In return for giving the administration permission to buy assets, Democrats pressed Paulson and Bernanke to agree to support programs that would more directly benefit consumers and taxpayers.

"What do the taxpayers get in return?" asked Sen. Robert Menendez (D-N.J.). "The proposal could result in the most direct commitment of taxpayer funds that our country has seen. There has to be a balance, a fair trade-off, and taxpayer protections."

Among other items on the Democrats' wish list: a second stimulus package that would feature new unemployment benefits, increased energy assistance and spending on infrastructure projects.

But most important, Dodd said, would be measures to curb the rising number of foreclosures, such as requiring lenders to write down the principal balance on mortgages of homeowners who owe more than their house is now worth.

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peter.gosselin@latimes.com

maura.reynolds@latimes.com

richard.simon@latimes.com

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Daily developments

* The government says it will purchase hundreds of billions of dollars of bad debt from troubled banks.

* In a highly controversial move, U.S. regulators put a temporary ban on short selling -- a strategy to profit from falling share prices -- in 799 financial stocks.

* The government takes the unprecedented step of insuring individual investors against losses in money market mutual funds.

* To spur the housing market, finance giants Fannie Mae and Freddie Mac as well as the Treasury Department will quickly expand purchases of mortgage-related securities.

* The Dow Jones industrial average jumps 3.4%.