Bailout talks to resume

NEW YORK (CNNMoney.com) -- The congressional negotiations over the proposed $700 billion bailout of the financial system were set to resume on Friday - a day after hours of talks ended in a partisan divide.

With President Bush warning that the nation's economy was facing a grave risk if a rescue plan is not enacted, a White House meeting with lawmakers and the presidential candidates revealed a deep split between Democrats and House Republicans.

Late-night talks between lawmakers and Treasury Secretary Henry Paulson - which were being conducted while federal banking regulators and executives were announcing the seizure and sale of Washington Mutual after the biggest bank failure in history - failed to reach agreement.

Rep. Barney Frank, D-Mass., the lead House Democrat on the issue who had been in close talks with Paulson for days, accused Republicans of refusing to negotiate.

"At this point, we have absolutely no participation or cooperation from House Republicans," Frank said.

While talks are set to resume Friday morning, any hopes of a clean, bipartisan legislative effort have broken down and the prospect of emergency weekend work on Capitol Hill looms large.

Agreeing on principles

Earlier in the afternoon on Thursday, the mood on on Capitol Hill was very different.

Frank, Sen. Christopher Dodd, D-Conn., and other key lawmakers negotiating with Paulson announced that they had reached agreement on a set of principles for legislation to enact the historic proposal.

The bailout proposal - the most dramatic government intervention in the financial system since the Great Depression - calls for the Treasury Department to buy up bad mortgage securities from banks in an effort to get them to lend again.

The proposal, as amended by leaders in both chambers, will help homeowners, curb executive pay packages at participating firms and provide oversight of Treasury's actions, Dodd said in a lunchtime address.

"We've reached a fundamental agreement on a set of principles, one, for taxpayers, which is tremendously important," he said. "We're very confident we can act expeditiously."

A few hours later, after a widely anticipated White House meeting at which Bush said he expected a deal could be crafted "very shortly," the negotiations