The proposal by Sen. Chris Dodd, D-Conn., the Banking Committee chairman, gives the government broad power to buy up virtually any kind of bad asset -- including credit card debt or car loans -- from any financial institution in the U.S. or abroad in order to stabilize markets.
But it would end the program at the end of next year, instead of creating the two-year-long initiative that the Bush administration has sought. And it would add layers of oversight, including an emergency board to keep an eye on the program with two congressional appointees, and a special inspector general appointed by the president.
The plan also requires that the government get shares in the troubled companies helped by the rescue.
Wall Street didn't seem comforted by developments as the Dow Jones industrial average fell more than more than 200 points while the credit markets remained nervous. Not only that, oil prices rose by more than $7 a barrel, indicating the fractiousness still present in trading after a week of huge volatility.
Investors were uncertain just how successful the administration's plan will be in unfreezing credit markets, which many businesses depend on to fund day-to-day operations, and for propping up the still-weak housing market.
Congressional aides said the House could act on a bailout bill as early as Wednesday. President Bush earlier Monday issued a statement saying "the whole world is watching" how the U.S. government moves on the legislation that has come in response to business turmoil that has roiled markets at home and abroad.
"Obviously, there will be differences over some details, and we will have to work through them. That is an understandable part of the policy making process," Bush said.
But he also said "it would not be understandable if members of Congress sought to use this emergency legislation to pass unrelated provisions, or to insist on provisions that would undermine the effectiveness of the plan."
The proposal that Dodd has sent to Treasury Secretary Henry Paulson would let judges modify the mortgages of homeowners in bankruptcy to allow them to keep their homes.
It also would require that the government come up with "a systematic approach for preventing foreclosure" on the mortgages it acquires as part of the bailout. That would include the home loans held by Fannie Mae and Freddie Mac, the troubled mortgage giants now under the control of a government regulator.
Asked about Democrats' demands, Treasury spokeswoman Brookly McLaughlin said, "There are lots of issues but the discussions we are having are good."
Asked if the negotiations could slow down passage of the measure, she said, "We are confident that we can get a bill done this week."
Dodd, interviewed on CBS's "The Early Show" on Monday, said taxpayers should be "first in line" to get money back once conditions in the industry stabilize and recover.
"We want oversight," he said, adding, "It's important that we act quickly, but it's more important that we act responsibly."
Rep. Barney Frank, chairman of the House Financial Services panel, said that Paulson "is being entirely unreasonable" to expect that Congress will pass a bill right away without examining the proposal thoroughly and adding provisions Democrats want, such as the curbs on executive pay.
"We want to limit those as a condition for giving them aid," Frank, D-Mass., told ABC's "Good Morning America."
"If Secretary Paulson would agree to that," he said, "we could move quickly."
Meanwhile, the Group of Seven, an organization of the world's leading economic powers, pledged Monday to do all it could to help ease the crisis. The group said in a conference call that it welcomed the extraordinary steps the United States has taken so far.
The fast-moving negotiations between the administration and Congress unfolded a day after the government approved a request by investment houses Goldman Sachs and Morgan Stanley to change their status to bank holding companies.
That change will allow the two venerable institutions to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both institutions. It will also grant them permanent access to emergency loans supplied by the Fed rather than the temporary loan status they have had since last March when the Fed moved to prop up investment banks following the forced sale of Bear Stearns.
Paulson and Federal Reserve Chairman Ben Bernanke kept up their outreach with Congress, holding meetings over the weekend aimed at convincing lawmakers to move quickly to approve the relief package.
Rep. Christopher Shays, R-Conn., who also serves on Frank's committee, said members "need enough time to debate this" and echoed Frank's concerns about executive pay. "We don't have these great golden parachutes and so on. In the end we're doing it for the taxpayers."
Frank said that lawmakers "are building strong oversight" into the measure.
"The private sector got us into this mess," Frank said, "The government has to get us out of it. We do want to do it carefully."
Republican presidential candidate John McCain, speaking Monday morning on NBC's "Today" show, said, "We are in the most serious crisis since World War II."
He also said that despite the ballooning national debt, he would not raise taxes if elected.
Congressional leaders have endorsed the main thrust of the administration plan, but say it must be expanded to include help for people on Main Street as well as the big Wall Street financial firms who have lost billions of dollars through their bad investment decisions.