In These New Times

Senate bailout vote pressures House The Swamp Posted October 1, 2008 9:20 PM
by Mark Silva

So it is the Senate that goes first with the bailout — some call it rescue — of the nation’s bad-mortgage-clogged banking institutions, with a vote tonight of 74-25.

The Senate’s strong and bipartisan approval of a $700-billion rescue of the nation’s struggling financial institutions, frosted with added new sweeteners for bank depositors and taxpayers, should help revive this historic attempt at righting the American economy in a resistant House.

The Senate vote tonight, with many Republicans voting for the plan and some Democrats against it, set the stage for a new run this week — probably Friday — at winning House approval of a federal intervention in the economy unseen since the Great Depression.

“It would be nice to say it’s a cure,” Sen. Jack Reed (D-R.I.) said, “but frankly it’s a tourniquet.”

“This country faces many serious problems… We must act, but we must act in a way that improves the situation,” said Sen. Bernie Sanders (I-Ver.) “We can do better than the legislation we are dealing with tonight.” Others warned that in the long run the bill will “do more harm than good.”

Sanders added a certain personal dimension to the debate tonight, noting that Treasury Secretary Henry Paulson, promoting the $700-billion rescue, is a former CEO of Goldman Sachs, one of the investment houses responsible for Wall Street’s ills.

Sen. Jeff Sessions, an Alabama Republican, said: “It is breathtaking that this Senate would authorize one person, with very little oversight, a Wall Street maven himself, to authorize… the largest expenditure in the history of the republic.”

Yet it was not only the advice of Paulson, but also the warnings of Federal Reserve Chairman Ben Bernanke, that started this train rolling in a private meeting with leaders two weeks ago tomorrow with a chilling explanation of the clogged arteries of the nation’s credit markets and the heart attack that will follow if no intervention is taken.

“Who would ever have thought that the lowly mortgage, the staple of our financial system, would bring us to our knees,” Sen. Chuck Schumer (D-N.Y.) said. “Chairman Bernanke held us spellbound the other night in the speaker’s office when he (discussed the state of the economy). It was frightening.”

The new bill — much bigger and more costly than the original for its addition of tax breaks — has been crafted in a way to overcome objections in a resistant House.

What’s new, since a sharply divided House voted 228-205 to scuttle the first plan on Monday:

— A dramatically higher cap on insurance that the federal government provides for individual bank depositors – lifting Federal Deposit Insurance Corp. protection to $250,000 per account.

— Also: Tax breaks for individuals and businesses alike, including relief for more than 20 million middle-income taxpayers subjected to an Alternative Minimum Tax that boosts their tax bills.

In addition, congressional leaders and the White House insist, the urgency of government action has been underscored by a roller-coast ride on the stock market, which followed the collapse of the federal bailout on Monday with its greatest single-day plunge in points ever and the largest percentage decline since the Black Monday of October 1987. The market rebounded the next day and held stable on Wednesday, as the Senate moved swiftly to revive apackage more palatable to the House.

“We’re going to fix the problem this week,” Senate Minority Leader Mitch McConnell (R-Ky.) said before the Senate vote.

Rep. Rahm Emanuel (D-Ill.), the House Democratic Caucus chairman and a key negotiator on the package, said he expected the tax cuts and bank protections added to the bill would probably help it pass the House: “It’s a guess,” he said. “I think we’ll learn a lot on Friday.”

The greatest obstacle for leaders remains wooing just a few members of the party of the president who is pushing the plan. House Republicans voted two-to-one against the Bush administration’s plan to authorize the Treasury to purchase as much as $700 billion in bad mortgage-related assets from banks and other financial institutions, in an attempt to avert a freeze in credit for consumers and businesses alike.

“It’s very important for members to take this bill very seriously,” Bush said with impromptu remarks at the White House today. “It’s very important for us to pass this piece of legislation so as to stabilization the situation, so it doesn’t get worse, and our fellow citizens don’t lose wealth and work.”

“It’s been improved,” the president said, “and I’m confident it will pass.”

The “add-ons” since Monday – mainly the boost in FDIC insurance from $100,000 to $250,000, and rollback of the Alternative Minimum Tax – are viewed as game-changers. The tax breaks for individuals and businesses also have added some $100 billion to the cost of the measure.

“We didn’t want a lot of add-ons,” White House spokesman Tony Fratto conceded. “The FDIC decision has been a recent one that we think will garner some additional support,” Fratto said. “It also includes protection for approximately 26 million Americans who would be hit by the AMT… We think it’s something that must be done, and again, helps to improve the chances of passage.”

In a rare show of bipartisan spirit, both of the presidential candidates also have lent their support to the measure. And both left the campaign trail to lend their votes to passage of the Senate bill.

“Even with all these taxpayer protections, this plan is not perfect,” Sen. Barack Obama (D-Ill) said today. “Democrats and Republicans in Congress have legitimate concerns about it. I know many Americans share those concerns. But it is clear that this is what we must do right now to prevent a crisis from turning into a catastrophe.

“I am pleased (measures) are being added to improve the original bill,” Sen. John McCain (R-Ariz.) said. “If we fail to act, the gears of our economy will grind to a halt.”
Leaders of both parties, allied on the basic plan and struggling to bring more House Republicans into the fold, predict that a strong bipartisan Senate vote will add impetus for House passage.

“I think the Senate thinks it has the votes and I think it probably will pass,” said House Majority Leader Steny Hoyer (D-Md.)

Tribune correspondents Christi Parsons and Jim Tankersley contributed