By Mark Egan
NEW YORK (Reuters) - Bush administration officials warned an angry Congress on Wednesday that the U.S. financial system would sink into Great Depression-style chaos unless it approved a $700 billion bailout plan and the president called an emergency meeting for Thursday to try to broker a deal.
While Congress considers how and when to act, U.S. markets were in turmoil. Investors stampeded into cash and safe-haven assets, briefly sending short-term interest rates below zero. Experts said banks were hoarding cash, fearful that if they loaned money to other banks they might not get repaid.
Bush administration officials warned of a looming economic disaster if Congress failed to act swiftly to fund the $700 billion bailout that would be larger than the total cost of the Iraq war.
With no deal in sight yet but markets still troubled, U.S. President George W. Bush called an emergency Thursday meeting with Democratic presidential candidate U.S. Sen. Barack Obama, his Republican rival U.S. Sen. John McCain and members of Congress to try to broker a deal.
White House spokesman Tony Fratto said Bush had invited Obama and McCain to the White House session. Obama accepted.
Wrangling over the bailout overshadowed Berkshire Hathaway Inc's
"I am to some effect betting on the fact that the government will do the rational thing and act properly," Berkshire's Warren Buffett, one of the world's richest men and preeminent investors, told CNBC.
Bush will seek to convince the American public to support the plan, which empowers the government to buy toxic mortgages at the center of the crisis, in a televised address Wednesday night.
Earlier, McCain said he will break off from his campaign to return to Washington to help broker a deal, saying he feared legislation could not pass in its current form. The Arizona senator said he wanted to cancel Friday's presidential debate.
"McCain's gambit portends the further politicization of the crisis/bailout issue and thus could complicate efforts to enact (the) $700 billion (bailout) ... by as early as this weekend," Chuck Gabriel, managing director at Washington-based consultants Capital Alpha Partners, said in a note to clients.
Obama indirectly accused McCain of playing politics and said the first of a series of planned presidential debates should go ahead.
"What is important is that we don't suddenly infuse Capitol Hill with presidential politics," Obama said.
"What I'm planning to do now is debate on Friday," the Illinois senator said from Florida. "It's my belief that this is exactly the time when the American people need to hear from the person who in approximately 40 days will be responsible for dealing with this mess.
While investors see an 80 percent chance that the U.S. Congress will approve the bailout by the end of the month, according to Intrade, an online betting site, many lawmakers are demanding changes to the bailout plan.
The changes include more protections for taxpayers and restrictions on the pay of executive at companies that unload their bad assets.
(Reporting by James Vicini, Mark Felsenthal, Gertrude Chavez-Dreyfuss, Dan Burns, Richard Cowan, Richard Leong, Al Yoon, Jonathan Stempel and Steven C. Johnson, Editing by John Wallace and Jeffrey Benkoe)
