Image: Paulson meeting
Lauren Victoria Burke  /  AP
Secretary of the Treasury Henry Paulson sits in the office of House Republican Leader John Boehner during ongoing negotiations on Capitol Hill regarding legislation on the financial crisis Saturday night.
updated 9/28/2008 9:04:15 PM ET 2008-09-29T01:04:15

The government effort to yank control of the sagging economy from Wall Street began to jell a half-hour before midnight Saturday in House Speaker Nancy Pelosi's Capitol office.

Even Republicans credit her for the inspiration: An idea for getting back the $700 billion of taxpayer money that will be on the line in what is shaping up as largest government rescue of an industry in the nation's history.

Pelosi proposed that whoever is president five years from now will have to submit a plan for recouping money from the companies who have been helped by any of the $700 billion not already paid back. Republicans had earlier rejected her suggestion to impose a fee on financial transactions to recover the money, calling it a tax increase.

Seated around the California Democrat's ornate office, the titans of government acquiesced, according to several people present at that pivotal session. They had been on the brink of a resolution before, but this time — less than a day before the first markets half a world away would react to the news — the real deal was almost done.

"Finally," said Sen. Judd Gregg of New Hampshire, the chief Senate Republican negotiator.

The compromise by the California Democrat marked the beginning of the end of the most intense round of policymaking in some very long careers.

As aides on Sunday set about the task of committing the agreement to paper, participants recalled a 10-day blur — by turns depressing and bizarre — that began with President Bush announcing that the economy was on the brink of collapse.

In the past month, the government had taken over mortgage giants Fannie Mae and Freddie Mac, the world's largest insurance company and one of the nation's largest banks, Washington Mutual. The fourth largest investment bank, Lehman Brothers, had collapsed and declared bankruptcy.

And now lawmakers were being asked by an unpopular president to bail out what was left of the financial industry by putting taxpayers on the hook for $700 billion five weeks before Election Day.

A revolt by conservative House Republicans was already in the works when negotiators announced Thursday that a deal was imminent, a day after GOP presidential nominee John McCain injected himself and Democratic rival Barack Obama into the debate by calling on Bush to convene a White House summit.

That meeting at the White House turned out to be the low point of the week, devolving into what McCain's campaign called a shouting match.

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Treasury Secretary Henry Paulson, getting down on one knee, begged Democrats in the room not to go on camera and reveal how badly it went. They didn't, but their aides were quick to tell reporters all about it.

Senate Banking Committee Chairman Chris Dodd said he considered the whole exercise a three-hour distraction from an urgently needed resolution of the crisis.

Back to the bargaining table on Capitol Hill.

Congressional negotiators agreed to limit the talks to a Republican and a Democrat from each chamber, as well as Paulson and their staffs. The group worked until 3 a.m. Saturday, then broke for 12 hours. Bush talked Saturday with Pelosi and other lawmakers and also huddled with Paulson.

Negotiators and their staffs reconvened in Pelosi's conference room just off the Rotunda around 4 p.m. Saturday.

The initial meeting quickly became unwieldy. More than three dozen people, including lawmakers, Paulson and their aides were crammed into Pelosi's suite, according to interviews with several participants. One person who was there counted 27 congressional aides in the negotiations.

Staff BlackBerrys were collected in a wastebasket to prevent details of the talks from being leaked to reporters.

Tempers flared. Several officials said Sen. Max Baucus, D-Mont., yelled at Paulson at one point over the administration's reluctance to restrict "golden parachutes" — huge severance packages — for executives at the troubled companies.

"Sen. Baucus was expressing himself aggressively," Gregg confirmed in an interview.

The crowd split into working groups. Paulson, House Republican Whip Roy Blunt and Gregg set up camp in House Republican Leader John Boehner's suite nearby. Democrats, including Dodd, House campaign chief Rahm Emanuel of Illinois, House Banking Committee Chairman Barney Frank of Massachusetts and Sen. Kent Conrad of North Dakota — came by to negotiate, Gregg said.

Pizza, burgers and salads were ordered. Someone complained that the nearest toilet was clogged.

Elsewhere in Washington, Obama and McCain were updated on the progress. The Democratic candidate received an award in the evening from the Congressional Black Caucus. McCain and his wife, Cindy, dined with Sen. Joe Lieberman of Connecticut, Lieberman's wife, Hadassah, and Sen. Lindsey Graham, R-S.C., at the tony Mandarin Oriental hotel.

On Capitol Hill, solutions to key disagreements began clicking into place. Democrats agreed to incorporate a GOP demand — letting the government insure some bad home loans rather than buy them — designed to limit the amount of federal money used in the rescue.

A little after midnight in Washington, Paulson and Congress' leaders were ready to face the cameras, relieved. The Tokyo stock market would open 20 hours later.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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