Negotiators in Washington scrambled in vain late into the night to salvage a compromise deal aimed at bailing out American's financial industry after last-minute objections were raised by some conservative Republicans.
For most of yesterday, both sides on Capitol Hill seemed on course to announce a deal to make $700bn (£350bn) available to buy soured mortgage-related assets from financial institutions, though with several conditions attached, notably provisions to cap the future pay packages of the bank executives.
Markets soared on hopes that the outline deal would be announced at the conclusion of a meeting called by George Bush and attended by party leaders and both men hoping to succeed him.
Both candidates had put the issue of compensation at the top of their list of conditions. John McCain said: "The senior executives of any firm bailed out by Treasury should not be making more than the highest-paid government official." That would cap pay at the level of the US president, namely $400,000, but it remains to be seen if Congress will heed McCain's call to the letter.
Hopes of a deal being announced last night were scotched when Senator Richard Shelby, who has consistently opposed the package as originally proposed by Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke, abruptly appeared before cameras outside the White House insisting no such deal was close.
A sombre Barack Obama later said that he had arrived in Washington believing that a deal was close but "that something happened in the intervening hours". But he insisted the game was not over. "I think eventually we are going to get a deal but I think there is still some work that needs to be done."
Christopher Dodd, the chairman of the Senate Banking Committee, could not disguise his frustration after the White House meeting, saying the last minute complications made the effort look more like "a rescue plan for John McCain". He added: "It does no good to be distracted for two or three hours by political theatre." Another Democrat said: "We're trying to rescue the economy, not John McCain's campaign."
The position of Mr McCain remained opaque. He neither endorsed the plan nor specifically spoke against it.
The Arizona Senator, meanwhile, said that without a deal today he will not attend the first presidential debate scheduled to take place tomorrow evening. It was a high-risk gamble that risks backfiring on him. Disentangling what Senator McCain believes to be the best way forward on securing a bailout package and what he thinks might be best for his ailing presidential campaign was almost impossible.
The compromise being backed by Democrat leaders – and largely also by Mr Obama – includes several new conditions. Only a fraction of the money will be released upfront. An independent panel would be created to oversee its implementation. Members of Congress are acutely aware the proposed bailout, to be financed with taxpayers money, has triggered public outrage.
The issue of executive pay, and particularly golden parachutes, became one of banner importance to those who were sceptical that the government should hand out money without demanding something in return from the bankers whose investments have brought the economy to the precipice.
The final version of the package would be likely to include a phased schedule for releasing the $700bn as well as measures aimed at keeping homeowners in their homes even if they are struggling with payments. It is also likely that, for its money, the government will demand some equity stakes in the firms involved.
Mr Obama insisted yesterday that "not one dime" of the package go to rewarding CEOs whose decisions contributed to the meltdown.
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