(Adds comments from Democratic lawmakers)

By Michael R. Crittenden and Corey Boles

Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--The U.S. Treasury Department's plan to rescue the country's failing financial markets would give Treasury Secretary Henry Paulson nearly unlimited authority to buy up to $700 billion of a broad range of soured mortgage-related assets from U.S. financial firms.

The 2 1/2-page Treasury proposal submitted to Congress, which was obtained by Dow Jones Newswires, would give the Treasury secretary significant leeway in buying, selling and holding residential or commercial mortgages, as well as "any securities, obligations or other instruments that are based on or related to such mortgages."

The only limitation would be that purchases could not exceed $700 billion outstanding at any one time. That figure compares with the $515 billion President George W. Bush included in his fiscal 2009 base budget request for the Department of Defense. The plan also calls for an increase in the public debt limit, boosting it to $11.3 trillion.

Congress already voted once this year to increase the debt limit, to $10.6 trillion as part of omnibus housing legislation that included broader federal authority over Fannie Mae (FNM) and Freddie Mac (FRE). The two mortgage firms have since fallen under government control.

Sen. Charles Schumer, D-N.Y., in a statement released by his office, offered a mixed reaction to the proposal.

"This is a good foundation of a plan that can stabilize markets quickly," he said. "But it includes no visible protection for taxpayers or homeowners. We look forward to talking to Treasury to see what, if anything, they have in mind in these two areas."

Senate Finance Chairman Max Baucus, D-Mont., said in a statement he would advocate for "mechanisms in this bill that keep the burden of this bailout off taxpayers, mostly by making reasonable requirements of the companies asking for this emergency help."

Republican and Democratic staff from the Senate Banking Committee and the House Financial Services Committee met with Treasury staff at noon to discuss the proposal. No lawmakers attended the meeting.

Aides were "trying to understand this and get our hands around it" because "a lot of aspects of this are unprecedented," according to one senior Democratic aide who was present at the meeting.

Lawmakers want to make sure that taxpayers will be protected and that "we're not misfiring," the aide added.

Spokespersons for the committees were not immediately available to comment on the proposal.

A Treasury spokeswoman also did not immediately respond to requests for comment.

Congressional Republicans have sent early signals that they oppose the addition of other measures to the Treasury proposal, such as an economic stimulus package pushed by Democrats. House Minority Leader John Boehner, R-Ohio, said in a statement that "efforts to exploit this crisis for political leverage or partisan quid pro quo will only delay the economic stability that families, seniors, and small businesses deserve."

Senate Minority Leader Mitch McConnell, R-Ky., said the the proposal "is, and should be kept, simple and clear."

But some Democrats appear ready and willing to push for their own priorities in the bill.

If Bush really believed that this thing was urgent, he'd be willing to compromise," said Rep. Brad Sherman, D-Calif., a member of the House Financial Services Committee. "Their hope is that if you create enough fear, you blind people to the fact that you can pass a good bill as quickly as you can pass a bad one."

House and Senate lawmakers, working hand-in-hand with the Bush administration, are expected to work throughout the weekend on finalizing the details of the plan. Congressional leaders have targeted a vote on the comprehensive plan for the coming week, though that will depend on the ability of the White House and Congress to agree on a final product.

The dramatic proposal, which represents the greatest federal intervention in the financial markets since at least the 1930s, was deemed necessary after a tumultuous week on Wall Street that saw the bankruptcy filing of Lehman Brothers Holdings Inc. (LEH), an emergency $85 billion loan to American International Group Inc. (AIG) by the Federal Reserve, and the sudden takeover of Merrill Lynch Inc. (MER) by Bank of America Corp. (BAC).

The proposal would expire after two years but would allow the government to hold the assets purchased from financial firms - which must be headquartered in the U.S. - for as long as is deemed necessary by the Treasury. Any assets purchased through the program would have to be tied to mortgages originated before Sept. 17 of this year.

The plan offered to Congress also gives the Treasury legal immunity from any lawsuits.

"Decisions by the secretary pursuant to the authority are non-reviewable ... and may not be reviewed by any court of law or any administrative agency," the proposal says.

The proposal does not detail how Treasury would manage the assets, but does give Paulson the authority to hire private financial institutions to conduct the program, as well as to create other entities to purchase mortgage assets and issue debt.

Lawmakers have said they want to add additional provisions to the Treasury proposal, including more help for cash-strapped homeowners facing foreclosure. Financial Services Chairman Barney Frank, D-Mass., has floated the idea of including limits on executive compensation for firms that take advantage of government aid.

Senate Banking Chairman Christopher Dodd, D-Conn., speaking to reporters Friday, said it is important for the final legislation to "not only allow us to deal with illiquid debt and obligations out there but also focus as well on bringing to a closure the foreclosure problem as well."

The cost of the proposal is unlikely to sit well with fiscally conservative lawmakers, though some members have already suggested that the government could potentially make money over time on the toxic assets it plans to purchase from financial firms.

-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; michael.crittenden@dowjones.com

(Patrick Yoest and Jessica Holzer contributed to this report)

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(END) Dow Jones Newswires

09-20-08 1502ET

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