U.S. Senate Approves $700 Billion Financial-Rescue (Update1)
By Nicholas Johnston and James Rowley
Oct. 1 (Bloomberg) -- The U.S. Senate tonight approved a $700 billion financial-rescue plan that funds the biggest government intervention in the markets since the Great Depression. The package now goes to the House of Representatives, which rejected an earlier version of the measure.
The bill, a bipartisan effort to restore confidence in the nation's banking system, passed 74-25 with 40 Democrats, 33 Republicans and independent Joe Lieberman of Connecticut voting for it. The two presidential nominees, Democrat Barack Obama and Republican John McCain, returned from the campaign trail to cast votes for the plan.
Backed by the Bush administration, the measure authorizes the government to buy troubled assets from financial institutions reeling from a record number of home foreclosures.
``It's very important for us to pass this piece of legislation so as to stabilize the situation, so that it doesn't get worse and that our fellow citizens lose wealth and work,'' President George W. Bush said before the Senate vote.
The House rejected a bailout package two days ago 228-205, as 40 percent of Democrats and about two-thirds of Republicans opposed it. At least a dozen House members would have to switch sides to complete congressional passage and advance the legislation to Bush to be signed into law.
The House plans to take up the measure in two days. It was revised to lure more Republican support.
The measure gives Treasury Secretary Henry Paulson broad power to acquire troubled assets from financial institutions saddled with troubled mortgage-backed securities. The plan also would limit executive compensation and provide oversight of the Treasury secretary's decisions.
`American Crisis'
``This is just not a Wall Street crisis; it's an American crisis,'' Senator Obama of Illinois said during the debate on the measure.
Obama flew to Washington this afternoon after a rally in La Crosse, Wisconsin. Senator McCain of Arizona flew in from Kansas City.
The legislation links the rescue plan to a temporary increase in the limit on federal deposit insurance to $250,000 from $100,000.
The Senate also linked the package to a two-year extension of tax breaks that will save individuals and corporations about $149 billion over the next decade, a move popular among House Republicans. The provisions include $17 billion in credits for the development of solar, wind and other forms of renewable energy.
The nonpartisan Congressional Budget Office said today that the tax provisions added to the bailout plan would add $119 billion to the government's projected budget deficits over the next five years.
Spared From AMT
The package would spare 24 million households from a $62 billion alternative-minimum tax that is due to take effect this year.
The legislation would let the Federal Reserve pay interest immediately on reserve balances, giving the central bank another tool to manage the nation's cash supply.
The Senate bill reiterates the U.S. Securities and Exchange Commission's authority to suspend an accounting rule that bankers and other corporate executives blame for exacerbating the global credit crisis.
The so-called fair-value standard requires companies to review assets and report losses if their values decline. Lawmakers, the American Bankers Association and companies including American International Group Inc. have urged the SEC to suspend or ease the rule, saying it forces firms to report deeper losses than needed on assets such as subprime mortgages.
Fair-Value Standard
``The SEC already has that existing authority,'' Robert Herz, chairman of the Financial Accounting Standards Board, said in an interview today. Herz defended fair value and said he was concerned about political pressure on FASB. The board sets U.S. accounting standards, and the SEC has override power.
The Senate measure also orders the SEC to study the effect the fair-value requirement has on bank failures and balance sheets.
House Majority Leader Steny Hoyer, a Maryland Democract, said some Democrats, concerned about the widening federal deficit, may oppose the addition of the tax breaks without offsetting spending cuts or tax increases.
``Certainly there are people who are upset that we are making the deficit worse as we try to stabilize the economy,'' Hoyer told reporters. The Democratic leader said he was ``personally disappointed' by the Senate's decision to include the tax legislation in the package.
Demanding Passage
Roy Blunt, the House's second-ranking Republican, said voters are now demanding passage of the bailout. That reversed an earlier flood of calls to members of Congress urging defeat of the package.
House members may be influenced by a shift in voter sentiment, reflected in e-mails and calls to Capitol Hill. After a week-long torrent of demands to kill the bailout, the tide turned after markets plunged following the House vote.
``Over $1 trillion worth of market value was wiped off the books by the stock market drop,'' said Senator Robert Bennett, a Utah Republican. ``It is ordinary people looking at ordinary pensions.''
House Republican leader John Boehner, who backed the measure that failed this week, said he supports the Senate plan.
Other lawmakers say their constituents are still opposed, and they have no regrets about killing the earlier measure. ``One of the best votes of my career,'' said Representative Peter DeFazio, an Oregon Democrat.
To contact the reporters on this story: Nicholas Johnston in Washington at njohnston3@bloomberg.netJames Rowley in Washington at jarowley@bloomberg.net;
Last Updated: October 1, 2008 21:58 EDT
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