First, I would like to present you with the mental image, as reported by the New York Times, of Treasury Secretary Henry Paulson bending down on one knee and begging House Speaker Nancy Pelosi to not withdraw her party’s support of the bailout plan.

Pelosi responds to Paulson by saying “It’s not me blowing this up, it’s the Republicans.”

Paulson replies, “I know. I know.

How did it come to this? Around 1pm EST yesterday we heard from members of both parties indicating that an agreement has been reached on the basic framework of the bailout package. They informed us that they would still meet at the White House that evening to hash out additional details on the “agreed-upon” plan.

President Bush welcomed members of both parties into the White House, including presidential candidates Barrack Obama and John McCain, who had arrived in Washington since the 1pm announcement. At the beginning of this meeting it looked like a great moment in bipartisan cooperation, and I for one expected the White House meeting to adjourn with broad consensus for a plan somewhat similar to the proposal offered by Treasury Secretary Paulson, with some additional protections and oversight.

However, briefly after the beginning of the meeting, House Minority Leader John Boehner (Republican) of Ohio unveiled a new plan to rescue the economy. This completely blind-sided both the president and the Democrats. For the first time I know of in President Bush’s administration he found himself backed broadly by Democrats, but back-stabbed by his own party. Apparently, House Republicans had been meeting in private since the afternoon adjournment at the Capitol Building. In these meetings they discussed Boehner’s new plan and decided to withdrawal support for the plan pushed by President Bush.

In Boehner’s plan congress would pass huge tax breaks and incentives for investors. This would theoretically encourage investors to pour money into financial markets, which would provide capital for banks to resume extending credit. This plan would limit government involvement and would not cost taxpayers money. Or, that is at least how the plan is presented. There are two serious flaws with this idea: 1) This plan is deceitful in that it is presented as a plan that costs the American taxpayers nothing. However, by allowing investors to avoid paying taxes tax revenues will be significantly less then they would have been without the plan and could potentially cost tax payers even more money in lost tax revenue. 2) This plan offers no guarantee of success and no mechanism for recouping these lost tax revenues. The Treasury’s plan at least allows the Treasury to buy assets with the expectation of recouping some money dolled out by taxpayers.

Luckily, this historic situation of a president supported by the opposing party results in the president being supported by the majority party. As talks continue today Democrats have the bargaining power as they have both the majority and the support of the president. I am confident that the progression of negotiations will result in a plan that is similar to the original plan proposed by Paulson, with some additional protections and oversight.

I would personally like to see several features added to the original Treasury proposal. There already seems to be consensus that adding oversight to the bill is a requirement, as is adding verbiage that prevents financial executives from profiting from the bailout (the so-called “golden parachute” prevention mechanism). Members of both parties also agree that protections should be added to ensure that taxpayers recoup as much of their investment as possible. One additional provision I would like to see, and which financial companies and Republicans vehemently oppose, is a requirement that financial institutions be obligated to renegotiate mortgage terms with struggling homeowners. Preferably, this requirement would be imposed on every financial institution, regardless of their participation in the bailout plan. This provision could be managed through the courts by giving judges the ability to rewrite mortgage terms in a fair an equitable manner when they encounter home owners stuck with mortgages they can not afford and shouldn’t have received in the first place.

One thing seems clear, though: the economy is in serious trouble and everyone from Wall St. to Main St. is clamoring from some kind of response from congress. In the last 24 hours we have seen yet another bank failure, this time the largest in history as Washington Mutual, the largest savings and loan institution in the country, found its assets seized by the Fed and sold to JP Morgan for $1.9 billion. This failure was handled quickly and in such a way that Washington Mutual and its customers will be able to continue doing business as usual for the foreseeable future. However, with increasing pressure on America’s financial juggernauts these kind of deals will be harder and harder for the fed to broker. JP Morgan might be well capitalized, but after purchasing both Bear Sterns and WaMu in the past few months their ability to buy up their failing competitors is limited, and very few large and well-capitalized buyers still remain.

Cooler heads appear to be prevailing and as the day comes to an end focus is quickly shifting to tonight’s debate, which McCain confirmed today he will attend.

This seems like a good opportunity for worried Americans to sit back, relax, and watch the debate. If that’s not exciting enough for you then I suggest you do what I plan to do: get some friends together and play the Presidential Debate Drinking Game.