Deal...or no deal? Bush tells politicians to settle bailout differences

Republican opponents stand firm on objections as MFI and Hardy Amies near administration

President George Bush insisted yesterday that the financial bailout package which may be the world's last hope of averting a further devastating economic downturn will be passed by Congress in spite of continuing deadlock on Capitol Hill.

In another breathless day of brinkmanship and blame-gaming in Washington, exhausted party leaders resumed talks aimed either at resuscitating the White House plan for a $700bn (£380bn) bailout of distressed financial institutions or crafting an alternative approach to preventing a further meltdown.

It was a drama that carried high stakes not just for politicians but also for ordinary citizens in America and beyond who will end up paying an untold price if the instability in the US, financial and political, is allowed to continue.

On a day of extraordinary political and economic developments:

*The first presidential debate was due to take place last night after John McCain agreed to participate.

*The giant US bank Washington Mutual had to be rescued by JP Morgan Chase after customers withdrew billions of dollars of deposits.

*Shares in Bradford & Bingley tumbled amid fears it would be taken over.

*HSBC announced that 500 jobs would be cut in London.

Appearing very briefly on the South Lawn of the White House, Mr Bush articulated what just about everyone could agree on. That a deal must happen. "There are disagreements over aspects of the rescue plan but there is no disagreement that something substantial must be done," he said. "We are going to get a package passed. We will rise to the occasion."

Ironically, it is his own party – and in particular conservatives in the House of Representatives – that has risen up to sabotage the plan first presented by the Treasury Secretary, Hank Paulson, and the Federal Reserve chairman, Ben Bernanke.

In a sub-plot almost as gripping, John McCain, the Republican presidential nominee, announced plans at the last minute to fly to Mississippi to attend the first presidential debate, which had long been scheduled for last night but which had been thrown into doubt when he announced his intention earlier in the week to stay away if a bailout package wasn't agreed first.

Mr Bush, whose leadership looked more threadbare than ever, was due to meet Gordon Brown later. The Prime Minister diverted to Washington after attending the UN General Assembly in New York. Mr Brown told UN delegates that "the age of irresponsibility" in financial markets had ended.

Harry Reid, the Senate leader and senior Democrat on Capitol Hill, pledged that Congress would not go into recess as it was meant to last night and would remain at work all weekend if necessary. He said he hoped that votes on a new compromise could possibly come as early as tomorrow or on Monday. Democrats are insisting any package include caps on pay and "golden parachutes" for banking executives

Mr Reid also suggested bluntly that the progress that had been achieved towards a deal had disintegrated at the last moment partly because of the distracting arrival on the scene of Mr McCain. It was Mr McCain's idea that a meeting to grease the wheels of a final deal be hosted by Mr Bush at the White House with him and Mr Obama attending. That session famously ended in chaos and recrimination.

The process really went off the rails when the conservatives came forward on Thursday with an entirely new plan that would put most of the onus on the banks themselves. The banks would have to inject capital into a fund to protect themselves against the falling value of mortgage-related securities, lessening the exposure of taxpayers.

Mr Paulson has called the alternative plan unworkable, financially. (The banks don't have the cash.) Politically, however, it responds to the reality that the original version is irredeemably unpopular across the country at a time when most members of Congress are seeking re-election. Mr Reid said the political dimension may have escaped Mr Paulson, "fine man though he is".

How the two plans might be woven together to create a palatable compromise package was far from clear.