Senate firmly backs bailout

Incentives added to sway lawmakers; prospects for bill in House uncertain

Senate Banking Committee chairman Christoper Dodd, Democrat of Connecticut, spoke after the vote backing the economic rescue package last night. Senate Banking Committee chairman Christoper Dodd, Democrat of Connecticut, spoke after the vote backing the economic rescue package last night. (Kevin Lamarque/Reuters)
By Michael Kranish, Globe Staff and Jenny Paul
Globe Correspondent / October 2, 2008
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WASHINGTON - The Senate, after adding tax breaks and other legislative "sweeteners" to attract skeptical lawmakers, voted decisively last night to resurrect President Bush's controversial $700 billion financial aid package for Wall Street, setting up what could be a dramatic showdown when the House of Representatives reconsiders the measure within the next few days.

The 74-25 vote came two days after the House rejected a similar bill, a move that triggered a record one-day plunge on Wall Street and upset world financial markets. Senate leaders from both parties pushed hard to craft the bill Bush said he needed to avert an economic meltdown, hoping the incentives will change the minds of House members who voted no: fiscally conservative Republicans and liberal Democrats.

"An end to the crisis is now in sight," declared Senate Majority Leader Harry Reid, a Nevada Democrat, after the vote.

"This is not a piece of legislation for lower Manhattan. It's a piece of legislation for all Americans," Reid said. US taxpayers "have a right to be frustrated with the economic crisis we face, and we share that with them. But inaction is not an option . . . It is my expectation the House of Representatives will follow suit."

In a statement last night, President Bush applauded the Senate vote and challenged the House to do the same.

"With the improvements the Senate has made, I believe members of both parties in the House can support this legislation," the president said. "The American people expect - and our economy demands - that the House pass this good bill this week and send it to my desk."

But most congressional leaders, involved in their own series of intense negotiations, said it was impossible to predict what will happen tomorrow, when the House is expected to vote on the measure.

House Financial Services Committee chairman Barney Frank of Massachusetts, who has played a major role in negotiations about the bill, said he believed the Senate additions to the bill, including business and middle-class tax breaks, could convince some recalcitrant colleagues to vote yes. But some representatives, he said, could be swayed by their constituents' reaction to the stock market's plunge Monday, which damaged the economy and drained value from retirement accounts.

"People who are engaged in the economy are saying, `My God, you have to do this,' " he said.

House Minority Leader John Boehner of Ohio, the top Republican in the House, said yesterday he was "optimistic that we will have the votes to pass this" but added after Monday's stunning defeat of the measure "I am not taking anything for granted."

Of the three House members from Massachusetts who opposed the bill on Monday, none pledged to support the new measure.

Last night's vote was the latest twist in Congress' reaction to what has been called the greatest financial crisis in a generation.

The crisis emerged last week when Bush urged Congress to give Treasury Secretary Henry Paulson immediate authority to spend up to $700 billion to buy up bad mortgage-related debt from staggering Wall Street firms - debt he said was clogging financial markets worldwide and choking off credit to US businesses and consumers. Lawmakers were furious but leaders in both parties reached a tentative agreement that gave the president much of what he wanted, but also added restrictions and oversight.

But the bill fell apart when the House defeated the measure in a narrow, dramatic vote, and US financial markets plummeted by 777.68 points - the largest one-day point drop in history. The market recovered 485.21 points on Tuesday and yesterday dropped 19.59 points as investors awaited the outcome of the Senate vote.

The roller-coaster stock market reaction prompted a new round of exhortations from President Bush and congressional leaders for Congress to try to put the rescue package back on track to avoid a financial meltdown and a further tightening on the availability of credit. Senate and House leaders worked together to craft the measure approved last night.

Unlike in the House, where the bill was approved by a majority of Democrats but rejected by about two-thirds of Republicans, the Senate measure was supported in bipartisan fashion.

Nonetheless, the opponents of the measure were outspoken and angry.

Senator Jim DeMint, a South Carolina Republican, opposed the bill, saying, "While we're asking Americans to bail us out, we're still spending money like there's no tomorrow." Decrying what he called an enormous expansion of governmental authority, he said "Congress is being dishonest and arrogant" about what caused the problem and what is needed to fix it.

Of the two Massachusetts Democrats, Senator John F. Kerry voted for the legislation, saying it was "very important" to pass the bill and enable credit to flow. While Senator Edward M. Kennedy was not present, as a result of his illness, he said in a statement the measure was a regrettable necessity.

Like the House bill, the Senate measure would provide up to $700 billion to the Treasury Department in order to buy bad mortgage-related debt, coupled with a program to provide mortgage insurance to companies that choose to hold the debt. The purchase and sale of assets would be overseen by a bipartisan review board. Both bills also include provisions limiting executive compensation of officials at companies that participate in the program.

But the Senate bill was filled with new measures. They included the extension of corporate tax breaks, such as one for research and development, tax relief for people hit by natural disasters, and renewable energy incentives. The measure also included a provision that would prevent more 20 million middle-income taxpayers from having to pay increased taxes under the alternative minimum tax.

Senators also agreed to a one-year increase in the federal insurance on individual bank deposits from $100,000 to $250,000. The measure was designed in part to boost consumer confidence in banks and to protect the assets of small business owners.

US Representative Stephen Lynch, a Massachusetts Democrat, while saying he supported the provision, objected to so many other measures being added to the bill.

"If we're going to debate those issues, let's debate them, but don't just hang them on like it's some kind of Christmas tree," Lynch said. "We've got a crisis on our hands. Let's get our economy stabilized, and we've got plenty of time for this other stuff."

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