IMPEACH BUSH

A cheat sheet to what Washington's fighting about right now.

Washington, D.C. As congressmen meet behind closed doors, they're weighing a complex raft of issues with virtually no time to make a decision on a proposed $700 billion bailout package from the U.S. Treasury. The stock market is on tenterhooks, credit markets are frozen and Fed Chairman Ben Bernanke has warned Congress that a lack of action could lead to recession. Here's what they're fighting about.

How Many Hundred Billion?!

The $700 billion figure is basically a placeholder, or, better yet, the worst-case-scenario figure Paulson could come up with to make sure his plan didn't fall short in the funding department. Since when did any government bailout plan not involve asking Congress for more money?

In testimony on Capitol Hill Wednesday, Bernanke explained that there were "various metrics" that could be used to arrive at that $700 billion number. It is 5% of $14 trillion in outstanding mortgage debt and roughly the same percentage of the $10 trillion to $12 trillion of commercial bank assets. "So it seems like an appropriate amount relative to the size of the problem," he told lawmakers.

It's also a little less than 20% of the $3.6 trillion in subprime and alt-A mortgages underwritten between 2001 and 2006, the later years of which were the height of the bubble.

One idea that Sen. Charles Schumer and others have talked about is limiting the initial size of the program or releasing the funds in $150 billion batches as the program progresses. Paulson says full immediate funding is needed for credibility. "We need the full authority," he said in testimony. "What this is about is market confidence. It's a sad story, but the American taxpayer is already on the hook."

What About Homeowners?

As many in Congress have argued, the credit crisis is caused by the housing crisis, so action should be taken to help homeowners directly, not just indirectly through improving credit markets (though the problems are fundamentally inextricable). Treasury's initial proposal is focused on credit. But congressmen have more homeowners than bankers who cast their votes.

Ideas floated in Congress include expanding the eligibility for people who can refinance into Federal Housing Administration loans, and putting many of the mortgages under the management of the Federal Deposit Insurance Corp., which has moved aggressively to modify mortgages. By lowering the amount owed, homeowners are more likely to pay off mortgages, and mortgage-backed assets become more valuable.

The biggest disagreement here is over a proposal to allow bankruptcy judges to modify mortgages. The proposal was originally in the housing bill but was killed off by aggressive lobbying from lenders, especially the Mortgage Bankers Association, who said the program would raise costs to all borrowers by introducing a new type of uncertainty into how loans would perform.

Supporters of modifications say that modifications can be nearly impossible in some cases, because of second loans, or because dozens of institutions might own part of a mortgage, and it's difficult to get them to the table, let alone to agree. Courts, however, could step in and force the issue. Congress seems to like it; Treasury is opposed. To what extent it would actually be implemented and have an impact of any sort is unclear.

These Guys Don't Have Money?

For Congress the stickiest issue of all is executive compensation. Employees at Bear Stearns, Lehman Brothers (nyse: LEH - news - people ), Merrill Lynch (nyse: MER - news - people ), Morgan Stanley (nyse: MS - news - people ) and Goldman Sachs (nyse: GS - news - people ) received an average of $220,000 in bonuses on top of their salaries last year. And now they're supposed to explain to their voters that they gave the same executives $700 billion in help. Much of Congress, both Democrats and Republicans, want to impose limits on how much firms who take advantage of the program can pay. If they can say they saved the credit markets but punished Wall Street, everyone back home will be much happier about the whole thing.

The Treasury's adamant opposition seems to have softened. On Wednesday, Paulson said he recognizes the need to compromise on the issue. In previous days, he told Congress that limits on executive compensation would prompt many firms to remain out of the program.

The law of unintended consequences is also at play. A cap on the tax deduction for executive salaries in the 1990s is thought to have contributed to a proliferation of problems with stock options. How would an executive compensation cap stop firms from simply selling their assets to the Treasury through intermediaries?

Equity in the Banks?

Connecticut Democratic Sen. Christopher Dodd's rival bailout plan includes a provision that the government obtain warrants for stock from companies that participate in the program. That would be similar to the assistance given American International Group (nyse: AIG - news - people ) and the government-sponsored mortgage financing firms Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ).

Having equity ownership in the companies that participate gives the government more of a say in how those companies stabilize their businesses and move on. The prospect of even partial government control might scare some weak banks from taking part in the plan, which is the main criticism of this idea. If enough banks shy away from the program, it won't have the broad market influence it is designed to have.

With both sides of the aisle and both houses of Congress concerned about compensation and equity--doubly so in an election year when the bailout is a perfectly timed anti-Washington story line for anyone trying to unseat an incumbent--can Treasury make the case that equity and compensation provisions would be counterproductive?

Can I Watch?

Treasury's initial bare-bones proposal had no oversight and accountability provisions. Congress would never agree to let the Treasury purchase $700 billion in assets without some sort of oversight. A counterproposal to the Treasury program, put out Monday by Dodd, was devoted largely to the question of oversight and accountability. Dodd's proposal would establish an oversight board, mandate monthly reports on expenditures, provide a Government Accounting Office audit, and establish a conflict of interest policy for companies that may be hired to help administer the program and also own many of the distressed assets themselves.

Treasury Secretary Henry Paulson said to Congress Tuesday that the oversight provisions are welcome and were not included in the initial proposal only because he didn't think it made sense to draft his own oversight. These basic oversight measures are unlikely to be a sticking point in the discussion, as everyone agrees some oversight is necessary.

Oversight is one thing, but the ability to see what is going on with the portfolio on a day-to-day level is another. Rep. Barney Frank's proposal calls for the Treasury to report electronically within 48 hours of a transaction the description, amount and price of the assets acquired. The belief is that having access to the data might create demand in the secondary market and get financial markets humming again.

Pork and Beans, Please

Everyone says the bill should be passed quickly and simply. But it's a time-honored tradition for Congress to add semi-, quasi- and un-related provisions to nearly every bill that moves through Congress. In Monday's draft from Dodd's office, there was already a provision that would provide revenue for two semi-related housing trust funds if the Treasury program is successful (see " Bells And Whistles"). House Members Joe Barton, R-Texas, and Michele Bachmann, R-Minn., have proposed adding oil drilling provisions to the bill. Count on congressmen to try to add as many ornaments to the Christmas tree as possible before passing something.