Senate passes rescue; effects rise
Wednesday, October 1, 2008
Sean Lengell and David R. Sands
The Senate passed Wednesday evening an amended version of a $700 billion Wall Street bailout bill, but it remained unclear whether the revisions would change enough minds to prevail in the House, which has scheduled a vote on the revised measure Friday.
"The leisure time is gone. We have to do something," Senate Majority Leader Harry Reid, Nevada Democrat, said minutes before opening the floor debate on the package.
Added Senate Minority Leader Mitch McConnell, Kentucky Republican, "I am confident this will work in the Senate. I am optimistic it will work in the House."
Major questions on the package remain in the House, which rocked world markets by voting down the original version of the bill Monday. The Senate version includes tax breaks, an increase in the federal deposit insurance limit and other "sweeteners," but many of the provisions are opposed by House budget hawks.
Both presidential candidates, Republican Sen. John McCain and Democrat Sen. Barack Obama, flew back to Washington to cast votes in support of the bailout.
Mr. Obama, in a 10-minute address on the Senate floor, said he shared the outrage and anger of average Americans over the size and cost of the bailout plan. But he warned that failing to address the problem now could lead to devastating consequences for the economy as a whole.
"There is plenty of blame to go around," the Illinois Democrat said, "and many in Washington and on Wall Street who deserve it."
"But many of us - all of us - have a responsibility to solve this crisis because it affects the financial well-being of every single American," he said.
Mr. McCain did not speak on the Senate floor during the debate.
Sen. Lindsey Graham, South Carolina Republican, echoed many members in saying that Congress was faced with only bad choices as it tried to avert a financial and economic meltdown.
"We have a bad choice here we all recognize," he said, "and we have a catastrophic choice if we do nothing."
The bailout provisions in the Senate bill largely tracks the rescue package the House rejected on a 228-205 vote. One change that is likely to attract both Republican and Democratic skeptics would be to increase the ceiling for federal insurance of bank deposits from $100,000 to $250,000.
In a bid to win more Republican votes in both chambers, the Senate bailout package has been grafted on to an earlier tax-relief bill for middle-class taxpayers and small businesses. That could attract additional Republican votes but may peel off some liberal Democrats and even conservative Blue Dog Democrats worried about the impact of the plan on the ballooning federal deficit.
Congressional budget analysts have estimated that the Senate bill would add at least $105 billion to the federal deficit in fiscal 2009.
U.S. financial markets nervously watched the maneuvering in Washington.
The Dow Jones industrial index, which reacted to Monday's House vote by suffering the biggest percentage drop since the Sept. 11 terrorist attacks, closed down just 19 points, less than 0.2 percent of its value, while the broader Standard & Poor's index of 500 stocks was off less than 1 percent. Financial analysts said that was a sign that the markets are cautiously confident that some form of the bill will eventually pass.
The rescue package, crafted by Treasury Secretary Henry M. Paulson Jr., would use taxpayer money buy up to $700 billion in troubled mortgage and mortgage-related assets on the books of U.S. banks and financial firms. Supporters say the bailout is needed to keep U.S. and global credit markets from seizing up and causing an economic implosion that they say is already spreading from Wall Street to Main Street.
Just as the Senate debate was beginning, President Bush told reporters at the White House that the rescue bill "has been improved" as it worked its way through Congress and said he was "confident" the Senate would pass it.
"It's very important for members to take this bill very seriously," Mr. Bush said.
But a package of tax cuts added to the Senate bill has upset fiscally conservative House Democrats, who say those cuts must be paid for with tax increases or spending cuts. Those members, who call themselves the Blue Dogs, were silent Wednesday.
House Majority Whip James E. Clyburn said the "sweeteners" the Senate inserted to win Republican support could scare off some Democrats and make it difficult for the measure to pass the House.
"That's a great possibility," the South Carolina Democrat said Wednesday on MSNBC. "Any time you reach out to one side when you've got a delicate balance like this, you've might lose on the other side."
Some conservative Republicans still oppose the plan's central tenet, which calls for the taxpayer money to purchase failed loans dragging down the books of the nation's banks and financial firms.
But Rep. John Shadegg of Arizona, a leading conservative Republican, told a Phoenix radio station Wednesday that he'd be "inclined to vote for the bill" if it raised the cap on federal deposit insurance and changed a rule that forces companies to devalue assets on their balance sheets to reflect the price they can get on the market.
House Minority Whip Roy Blunt, Missouri Republican, said that prospects for passage have improved and that he was particularly heartened by indications that the legislation has become more appealing to constituents back home.
But House Majority Leader Steny H. Hoyer, Maryland Democrat, said that while the tax breaks in the new proposal may attract more House Republicans, the provisions are hard for some Democrats to accept. He told reporters that a House vote was likely sometime Friday.
"I'm personally disappointed that the Senate has chosen to add the so-called extenders bill [-] the tax bill [-] to this recovery package," Mr. Hoyer said. "We've been told [by Senate leaders] on the extenders package 'take it or leave it,' and to that extent we haven't had a real ability to work to come to an agreement. I was pretty much given to us as a 'fait accompli.'"
He held out the possibility that the House would amend the Senate version of the bill, saying he was still discussing the package with Democratic members.#
Mr. Reid told reporters that he would keep the Senate in session after Wednesday's vote in case more action was needed.
But, he added, "I would not have moved this bill forward if I didn't think the chance of passage in the House was good."
Many conservative critics in the House contend that the plan will not work and represents a massive government intrusion in the private sector, while many liberal Democrats charged that the package did not do enough for troubled homeowners threatened with foreclosure.
Mr. McCain and Mr. Obama took a break from the presidential campaign to provide more votes in favor of the bill. [Note] While [/NOTE] Although they are backing the bailout, the two have sparred on the campaign trail over which candidate had done more to rally their party behind an acceptable bill.
The Senate has always been considered more likely to approve the bailout measure, with Mr. McConnell of Kentucky and other top Republican senators strongly urging passage. Lawmakers say the sharp negative reaction by the markets to the House vote [-] and a new flood of constituent calls urging Congress to act [-] has made the bailout vote an easier political sell.
Bill Frenzel, a former Republican House member from Minnesota, said at a forum on the bailout held at the Brookings Institution that many of the new calls coming into Capitol Hill offices backing the rescue plan are from business owners, trade association leaders and others that the members already know, increasing the sense of urgency.
"The bulk of the communications have switched from the resentment side to the fear side," prodding lawmakers to act, Mr. Frenzel said.
As in the House, some of the Senate's most liberal and its most conservative members banded together against the bailout package.
Sen. David Vitter, Louisiana Republican, called the bill an "unprecedented expansion of the federal government at taxpayer expense," while Sen. Bernard Sanders, Vermont independent, denounced the bill as a giveaway to Wall Street.
Sen. Jon Tester, Montana Democrat, said the bill "doesn't deserve my vote."
"I don't believe it's tough enough to protect American taxpayers and small businesses," he said. "And it passes too much debt on to our kids and grandkids."
Mr. Bush was monitoring the Senate debate from the White House, huddling with Mr. Paulson and Federal Reserve Board Chairman Ben S. Bernanke, spokesman Tony Fratto said.
The president had unsuccessfully lobbied wavering House members to support the package before Monday's vote. Mr. Fratto said a new round of presidential calls have "so far have all been very positive. We feel that there's a sense of momentum."
• Don Lambro contributed to this report.