Early in the afternoon, key lawmakers announced that they had reached an agreement on a set of principles for legislation in order to enact the Bush administration's proposal. Markets soared as investors believed the bill would soon be signed.
The proposal would help homeowners, curb executive pay packages at participating firms and provide oversight of Treasury's actions. The Treasury would receive the $700 billion in installments and would also get an equity stake in the companies being helped by the bailout.
A few hours later, when Congressional leaders and presidential nominees Barack Obama and John McCain met with President Bush and Secretary Paulson at the White House, the negotiations broke down
, revealing a split between Democrats and House Republicans.
House Republicans issued a statement of economic rescue principles that called for Wall Street to fund the recovery by injecting private capital - not taxpayer dollars - into the financial markets. The plan also called for participating firms to disclose the value of the mortgage assets on their books, ending Fannie Mae and Freddie Mac's securitization of "unsound mortgages," reviewing the performance of the credit rating agencies, having the SEC audit failed companies to ensure their financial standing was accurately portrayed, and creating a panel to make recommendations for reforming the financial industry by year's end.
Late-night talks between lawmakers and Treasury Secretary Henry Paulson failed to end in agreement, shattering any hopes of a clean, bipartisan legislative effort, and putting in jeopardy chances of passing a bill by the end of the week.
Then, in another stunning event, Washington Mutual collapsed late Thursday night
, marking the biggest bank failure in history. But after the troubled thrift was seized by the FDIC, federal regulators helped orchestrate a deal in which JPMorgan Chase paid $1.9 billion for WaMu's assets. NEXT: Friday, Sept. 26 - Back to the bargaining table