03 October 2008
House of Representatives approves controversial plan on second try
Washington — The president signed into law a $700 billion financial rescue bill within hours of its passage by the House of Representatives.
The congressional chamber reversed itself October 3 and approved a revised version of the $700 billion rescue it had rejected four days earlier.
The House cleared by a 263-171 vote the bill designed to stabilize the U.S. and global financial systems by thawing frozen credit markets and preventing major bank bankruptcies. The Senate endorsed the bill October 1 after adding several new features to the House-rejected version, including a temporary increase in the amount of bank deposits insured by the government, tax-cut measures and a few unrelated provisions.
Before signing the bill, President Bush applauded Congress for completing it in a timely manner.
“We have shown the world that the United States of America will stabilize our financial markets and maintain a leading role in the global economy,” he said.
Some lawmakers, private-sector economists and other opponents of the controversial plan argued it was rushed and ill-conceived and risked too much taxpayer money to help irresponsible people on Wall Street.
But the administration, the Federal Reserve — the U.S. central bank — congressional leaders and other supporters countered that the consequences of inaction or delay could be a global financial meltdown and depression.
EVENTS CATCH UP WITH LAWMAKERS
The Senate additions were mostly well received in the House, where members have been under pressure from the White House, presidential candidates, voters, business organizations and other groups, who saw the plan as essential to America’s financial security. Perhaps the biggest factor contributing to the change in lawmakers’ sentiments was gloomy economic news following the House’s failure to pass the bill: a large drop in the stock market, anecdotal evidence about consumers unable to obtain credit, and fresh data about continued job losses. Those developments, combined with the prospect of a global financial meltdown and depression, prompted many opponents to switch their votes from “no” to “yes,” even if they were concerned about the merits of the plan.
“We’re out of choices, and our backs are up against the wall,” said Representative Zach Wamp, a Republican, during October 3 floor debate preceding the vote.
Details of the complicated plan have yet to be fleshed out, and its implementation, which carries some risks, will take time.
Treasury Secretary Henry M. Paulson Jr., who submitted the initial rescue plan to Congress, acknowledged that much when he said, “There is no one-size-fits-all solution to alleviating the stress in our financial system.
“Each situation will be different, and we must implement these new programs with a strategy that allows us to adapt to changing circumstances and conditions, and attract private capital,” he said.
But whatever strategy the Treasury chooses, the plan, which amounts to the largest government intervention in the financial markets since the Great Depression of the 1930s, is likely to have a significant impact on the U.S. economy. Together with a sweeping regulatory reform Paulson has proposed to be taken up by the next Congress, the financial rescue program will reshape the financial and related industries, according to analysts. (See “How Will Washington Prevent Another Financial Crisis?”)
Some lawmakers and private-sector economists caution that the package will not resolve all problems in the financial markets and will not bring the U.S. economy out of its doldrums soon.
But the supporters of the plan expect it to be “a critical step toward stabilizing our financial markets and ensuring an uninterrupted flow of credit to households and businesses,” as Ben Bernanke, chairman of the Federal Reserve, put it.
The new law calls for the government to act as the buyer of last resort for home mortgages and so-called toxic securities held by struggling institutions, including some foreign banks, and as a provider of fresh capital to financial institutions whose failure could jeopardize the financial system. Mortgage-backed and other securities lost much of their value as hundreds of thousands of Americans defaulted on their home loans in recent months.
The drafters of the original plan put together by the Treasury Department — with support from the Federal Reserve — hope to jump-start credit markets so businesses will be able to borrow and grow, securities’ prices will rise, and private investors will feel confident enough to re-enter the market.
The plan — in its original and final form — contains several options for the government to recoup the money used to pay for the purchase of toxic assets and possibly earn a profit. If, after five years, the government determines that the program has lost money, it would ask the financial industry to cover the projected shortfall.
As a result, a congressional research arm estimates, the “net cost [to the government] is likely to be substantially less than $700 billion.”
The full texts of Bush’s, Paulson’s and Bernanke’s statements are available on the respective Web sites of the White House, the Treasury Department and the Federal Reserve.
A summary of the Senate bill, an analysis of it and the complete text (each is a PDF file) are available on the Senate Banking Committee Web site.