U.S. House passes revamped $700 bil financial bailout bill

Saturday 04th October, 07:25 AM JST

WASHINGTON —

The U.S. House of Representatives passed a revamped $700 billion financial bailout bill Friday amid increasing fears that the already-sagging U.S. economy could collapse without it, following its rejection of an earlier version of the legislation four days ago.

President George W Bush signed the bill into law immediately after receiving the legislation that he said is “essential to helping the economy weather the financial crisis.”

The 263-171 vote capped two weeks of tumult in Congress and on Wall Street, punctuated by urgent warnings from Bush that the country confronted the gravest economic disaster since the Great Depression if lawmakers failed to act.

“We have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country,” Bush said shortly after the plan cleared Congress, although he conceded, “our economy continues to face serious challenges.”

His somber warning was underscored on Wall Street, where enthusiasm over the rescue gave way to worries about obstacles still facing the economy, and the Dow Jones industrials dropped 157 points. The Labor Department said earlier in the day that employers had slashed 159,000 jobs in September, the largest cut in five years.

The historic vote was a striking turnaround from the measure’s spectacular failure earlier in the week, which had triggered a massive stock sell-off and prompted jittery lawmakers — fearing a crushing economic contagion that was spreading to their constituents — to reconsider.

“Let’s not kid ourselves: We’re in the midst of a recession. It’s going to be a rough ride, but it will be a whole lot rougher ride” without the rescue plan, said Rep John A Boehner, R-Ohio, the minority leader, as he prepared to cast his vote for the most sweeping federal intervention in markets in decades.

Treasury Secretary Henry Paulson pledged quick action to get the program up and operating.

The bailout, which gives the government broad authority to buy up toxic mortgage-related investments and other distressed assets from tottering financial institutions, is designed to ease a credit crunch that began on Wall Street but is engulfing businesses around the nation.

“In these past two weeks, we’ve seen things we never thought we would see before in terms of the economic insecurity of our own country,” said House Speaker Nancy Pelosi, D-Calif. She said the measure would “begin to shape the financial stability of our country and the economic security of our people.”

Rep Barney Frank, D-Mass, the Financial Services Committee chairman, said the rescue bill was just the beginning of a much larger task Congress will tackle next year: overhauling housing policy and financial regulation in a legislative effort he compared to the New Deal.

“We were the EMTs rushing to the rescue of an economy that suddenly found itself choking, but now we have to perform more serious reform,” Frank said.

Just four days earlier, the previous version of the bill was sent down to defeat, largely at the hands of angry conservative Republicans. On Friday, a total of 33 Democrats and 25 Republicans switched from opposition to support. In all, 91 Republicans joined 172 Democrats to support the measure while 108 Republicans and 63 Democrats voted “no.”

The reversal reflected a high-stakes political environment just four weeks before Election Day. Some lawmakers were worried about their own jobs, but others — mostly Democrats — focused on the prospect that a new president could have a far more significant effect on the economy than any one piece of legislation.

Several of the Democratic switchers were members of the Congressional Black Caucus who said they changed course after securing commitments from presidential candidate Barack Obama that he would back legislation to help struggling consumers and homeowners facing foreclosures if he wins the White House.

“It’s not too often you get the future president telling you that his priority matches your priority,” said Rep Elijah Cummings, D-Md, one of 13 black lawmakers who switched from “no” to “yes.”

Republican presidential candidate John McCain also lobbied for the measure, according to aides who declined to say whom he called.

Rep Roy Blunt, R-Mo, the party vote-counter, said McCain phoned Rep John Shadegg, a fellow Arizonan who switched to “yes.”

The legislation’s roller-coaster ride through Congress began at a somber meeting in Pelosi’s office in mid-September, where Paulson and Federal Reserve Chairman Ben Bernanke frightened senior Democrats and Republicans with their warnings of an impending economic collapse without quick legislative action.

As lawmakers scrambled to draft a bill, they were barraged by angry calls from constituents to reject what many saw as a huge giveaway to the very financial institutions that helped cause the subprime mortgage meltdown at the root of the economic crisis — with nothing to help its ordinary victims.

“Pray for our republic,” intoned Rep Marcy Kaptur, D-Ohio, a leading opponent of the measure. “She’s being placed in very uncaring and greedy hands.”

Supporters said the prospect of economic disaster superseded their political fears.

“I may lose this race over this vote, but that’s OK with me,” said Republican Rep. Sue Myrick of North Carolina, who switched her vote to favor the measure. “This is the right vote for the country.”

After the breathtaking House defeat on Monday, Senate leaders took custody of the rescue, adding on $110 billion in tax breaks designed to attract additional support. They attached the overall measure to a popular bill mandating broader mental health coverage in the insurance industry.

The rescue measure was changed to lift, from $100,000 to $250,000, the cap on government bank deposit insurance — a key priority for Republicans. Also key to winning GOP support was a decision by the Securities and Exchange Commission to ease accounting rules that require financial institutions to show the deflated value of assets on their balance sheets.

The revised measure won Senate approval Wednesday night, 74-25, setting up a furious round of lobbying in the House as the administration, congressional leaders, the presidential candidates and outside groups joined forces behind the measure.

The maneuvers worked — augmented by a shift in public opinion that occurred after the stock market took its largest-ever one-day dive on Monday.

The plan — initially a three-page request from the Bush administration for unlimited power to use $700 billion any way it saw fit to stabilize markets — swelled to more than 450 pages as negotiators added restrictions for the administration and sweeteners for anxious members of Congress.

Lawmakers added greater supervision over the $700 billion — including a process where Congress could vote to block half the money — measures to protect taxpayers, and steps to crack down on “golden parachutes” for corporate executives whose companies benefit from the bailout.

Wire reports

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Latest 15 of 36 Total Comments Show All

borscht at 06:41 PM JST - 4th October

When the House didn't pass this bill some people here were heaping praise on the Republicans for having principles and believing in the free market. I guess they still do because they're making a bundle off this giveaway. As Sarge pointed out, congratulations on the pork.
CavemanLawyer at 09:23 PM JST - 4th October

If this goes to the idle poor, there will be no benefit to the nation.

By what mysterious mechanism from your wildest dreams is that money going to go these "idle poor" you are fearing???????????????????????

It is going to the fat cats. And it still won't benefit the nation! All it has done is ensure more foreclosures on people who might not be able to pay their mortgages right now, for all the reasons people get that way. Maybe you can only imagine those people as "idle", but layoffs, divorces, car accidents, childen's medical costs, etc. etc. add up. Nobody asks for these things, no more than Fannie and Freddy asked for bad loans. But you seem quite pleased to bail out obvious financial irresponsibility over possible financial irresponsibility. Odd that. Suspicious even. --Cirroc
CavemanLawyer at 09:26 PM JST - 4th October

If money comes to those deserving: hard working, middle class guys, then great.

Its not. Not even.
Betzee at 09:51 PM JST - 4th October

"The first vote was lubrication. The American people are taking it with lubrication."

Indeed, Adverts. And BTW, I was going to ask you to buy me a beer if my bank went belly up, as we were warned might happen, in the event there was no bail-out, excuse me "rescue plan" for Wall Street.

This legislation, in fact, serves as the epitaph of the Reagan "deregulation" reorganization of the American economy. Here we have an administration, that claims to be an heir of RR, which accepted as an article of faith that markets are best left to regulate themselves and government involvement can only muck things up, orchestrate a colossal public intervention in the economy in order to keep it functioning.
SuperLib at 03:01 AM JST - 5th October

You are not serious are you? People really do not need to be side-tracked on this.

I'm the one getting side tracked during this political circus?

Do you know what the most dangerous thing is about this entire situation? It's the fact that even something this important cannot escape the binds of polarization. All of your doomsday scenarios, sexual innuendos, frivolous comments are the same politics that people have become entrenched in for years. If this wasn't important enough for you guys to put your swords down, then probably nothing is.

And that's the scary thing about the future.
SezWho2 at 08:00 AM JST - 5th October

SuperLib,

Couldn't you have just said that you weren't serious? It seems to me that Caveman Lawyer just mistook what I thought was your sarcasm for sincerity. If so, that's one of the problems with sarcasm. It's also one of the reasons why Swift's "Modest Proposal" was so long. He wanted to be sure people got the point.

I agree with what you characterize as the most dangerous thing about the entire situation. However, your identification of a real and bigger problem still has not illuminated any path to solution. As a matter of fact, I don't think that you've even demonstrated that the current "crisis" is the type of problem which can has enough velocity to escape polarization.

It seems to me that the current issue is exactly the type of issue which lends itself to polarization. It's not exactly as though we are England under the blitz. Those folks knew what the problem was and they knew what the solution was: stop the bombs from falling.

We don't know what the problem is here and Congress and the American people have been urged once more to take immediate prescribed action for a problem on which there is no agreement. Polarization is exactly what I would expect.
solarbuster at 08:29 AM JST - 5th October

Tried reading the bill? There is around 263 parragraphs with tax breaks on every thing from wind energy to blowing your nose. Just lucky the the other 171 were against it or they just stopped adding things when they got their numbers other wise there would have 434 paragraphs of pork with only one on subprime. All miss the cause of present crisis which is the same as the 1930's depression, too much stupid money going into stupid investments instead of infrastructure.
Nessie at 09:32 AM JST - 5th October

is around 263 parragraphs with tax breaks on every thing from wind energy to blowing your nose.

There's even a double tax break for wind energy generated by blowing your nose.
Nessie at 10:32 AM JST - 5th October

"The first vote was lubrication. The American people are taking it with lubrication. They may as well keep their hands on their ankles though. More to come slave boy"

The first vote was "no means yes."
CavemanLawyer at 11:33 AM JST - 5th October

It's the fact that even something this important cannot escape the binds of polarization.

What polarization? Rich vs. poor? I am just making an observation. I did not set the stage. It was those who set the stage that bound this to that particular polarization. They make sure the rich stay in business and stay fat while others lose their homes.

All of your doomsday scenarios

Doomsday? I did not say everyone would lose thier homes. But enough will that everyone should be taking it personally. Obviously Bush and Congress dont care if John Q. Public falls on hard times, but if Mr. Moneybags III does, man are they ever ready to help!

If this wasn't important enough for you guys to put your swords down, then probably nothing is.

I did not suggest anyone pick up their swords till after the resolution passed. There was talk of making sure the peasants were also given consideration, but I do not see where that actually happened. It was just more lip service. The people of America just jipped by the rich and powerful, yet again. I think they should be fighting mad. --Cirroc
taniwha at 11:59 AM JST - 5th October

Betzee,

This legislation, in fact, serves as the epitaph of the Reagan "deregulation" reorganization of the American economy.

Hey hey, let's just be a little less telescopic in how we choose to see the part the US political system played in this financial crises.

Ronald Reagan's administration caused a mass of social misery within the US. Within the US it was 'Reaganomics' that carved up the hopes and dreams of the American working class. Reagan slashed funding for social programs and fired more than 12,000 air traffic controllers that went out on strike. Meanwhile, Reagan slashed the tax rate of the wealthy from 70% to just 28%, welcoming in the period of the 'Gordon Gekko-ists'.

However, the big deregulation of Wall Street did not take place on Reagans watch! Lets be very clear about the role of the Democratic Party, why don't we.

It was the Clinton administration that was responsible for the single most sweeping deregulation bill in American history. On October 22 in very the early hours, the Clinton administration and the congressional Republicans came to an agreement to lift virtually all restraints on the giant monopolies dominating the financial system.
taniwha at 12:01 PM JST - 5th October

Betzee, this might clear up the confusion over how and when the big deregulation actually took place.

The Financial Services Modernization Act of 1999 did away with restrictions on banking, insurance and stock that was formerly imposed by the Glass-Steagall Act put in place as a result of the Great Depression in 1933.

At the time the Wall Street Journal wrote, "With the stroke of the president's pen, investment firms like Merrill Lynch & Co. and banks like Bank of America Corp., are expected to be on the prowl for acquisitions." And at that time the financial press were predicting that the most likely mergers would come from big banks acquiring insurance companies.

Betzee, best not to be selective reading history when the point is to understand what has happened and where to go from here.
Betzee at 03:44 PM JST - 5th October

The Financial Services Modernization Act of 1999 did away with restrictions on banking, insurance and stock that was formerly imposed by the Glass-Steagall Act put in place as a result of the Great Depression in 1933.

I'm familiar with the bill, it was authored by Phil Gramm and, of course, signed into law by Bill Clinton. It enabled banks to take on more debt (which was concealed through creative accounting techniques). But it's been under Republican leadership, specifically since the election of Ronald Reagan in 1980, that significant deregulation has occurred. While John McCain has paid lip service to the need for oversight in the wake of this bail-out, yet he has not retired those bromides about "getting government off our backs" (voiced by Palin in the debate).

I've followed the issues closely all my adult life and they are complex. Airline industry deregulation, for example, did make flying cheaper. But we've also seen a number of airlines go bankrupt and need assistance from the federal government to get back on their feet. Plus, they are unable to upgrade their aging fleets to more fuel efficient carriers, putting them at a disadvantage in the marketplace as the price of oil has risen. More bankruptcies will probably mean more bail-outs. And I guess the American public will go along with it if the alternative is taking Air France!
taniwha at 06:17 PM JST - 5th October

Betzee

I'm familiar with the bill, it was authored by Phil Gramm and, of course, signed into law by Bill Clinton. It enabled banks to take on more debt (which was concealed through creative accounting techniques).

You might be talking about mergers carried out before the legislation took effect, Citybank merged with Travelers Group Inc, which was a very large insurance and financial service conglomerate. That merger and a few others like it were carried out in violation of the Glass-Steagall Act. They took place just before the Act was to be repealed, and only because the CEOs at the time were confident of the BIPARTISAN support.

Over a period of five years the big 3 insurance industries of the time spent $300 million to win the favour of both sides of the House. $58 million in campaign contributions went to Democratic and Republican candidates, $87 million in "soft money" contributions went to the Democratic and Republican parties, and $163 million on lobbying of elected officials.

At the time of legislation Edward Yingling, chief lobbyist for the American Bankers Association, told the New York Times, "If I had to guess, I would say it's probably the most heavily lobbied, most expensive issue" (in a generation).
taniwha at 06:18 PM JST - 5th October

Betzee

Yes, a financial deregulation bill was passed in the early 1980s under the Reagan administration. And that lifted many restrictions on the activities of savings and loan associations - previously limited primarily to the home-loan market. That led to an orgy of speculation and that led to the big financial bailout that cost $500 billion.

But - the difference between Clinton's legislated deregulation and that championed by Reagan was simply that the banking and security markets were far, far larger, and of course well beyond any federal bailout. The outcome now has sprung directly from the Clinton /Republican deregulation.