After two weeks of dramatic reversals and market turmoil, the Bush Administration's proposal to invest as much as $700 billion in the troubled market for mortgages and related securities passed into law in a matter of hours on Friday, Oct. 3.
The House of Representatives voted 263-171 to adopt the measure, without amendment, and President George W. Bush signed it about 90 minutes later.
The bill received 91 votes from Republicans and 172 from Democrats, up from 65 Republicans and 140 Democrats in a failed vote Monday. Faced with substantial public disapproval—albeit less than it seemed earlier in the week (BusinessWeek.com, 10/2/08)—Democratic leaders had insisted throughout the process that they needed a bipartisan bill. Otherwise, they feared, they would be seen as joining the Administration in a Wall Street bailout.
Lawmakers supporting the bill cited a rapidly worsening credit market that had left constituents unable to get financing to buy cars or bank loans to expand small businesses. Some cited public opinion shifting since Monday, when the House's rejection of an earlier version of the bill, by a 228-205 vote, sent the Dow Jones industrial average spinning down more than 778 points (BusinessWeek.com, 9/29/08), or almost 7%. Several House members warned from the floor that the bill was no silver bullet, and that Congress and the Administration—both this one and the next—will still have plenty of work to do.
Treasury Secretary Henry Paulson Jr. promised both speed and care in executing the Troubled Asset Relief Program created by the bill. "We will move rapidly to implement the new authorities, but we will also move methodically," he said. The goal would be to use a variety of tools to reinvigorate the private capital markets.
Bush called the bill the product of a successful bipartisan effort, and said that, although many Americans "have concerns" about the bill, the measure is necessary to prevent a serious financial crisis from worsening. "We have acted boldly to help the crisis on Wall Street from becoming a crisis in communities across our country," he said. Bush also visited the Treasury Department, where he praised Paulson and agency employees for six weeks of grueling work "dealing with a serious financial crisis."
From the Presidential campaign trail, Barack Obama and John McCain lauded the bill's passage, but said more hard work remained before the economy would improve substantially.
"We must also do more than this rescue package does to help homeowners stay in their homes," Obama said in a statement. "Passing this rescue plan cannot be the end of our work to strengthen the economy—it must be the beginning."
McCain, in a statement, called the bill "a tourniquet, not a permanent solution" but said modifications to the bill would protect the taxpayer. "It is an outrage that it's even necessary," McCain said. "But we must stop the damage to our economy done by corrupt and incompetent practices on Wall Street and in Washington."
Jitters About the Add-Ons
Heading into the vote, business and some consumer lobbyists worked furiously (BusinessWeek.com, 10/2/08) to change votes in the House. There were some last-minute jitters (BusinessWeek.com, 10/3/08) about the outcome, in part thanks to the very provisions added to make it more palatable to Republicans.
Some feared that liberal lawmakers would balk at tax breaks for businesses when they had complained the bill did too little for homeowners or families; or that fiscal conservatives worried about the deficit would object that many of the tax breaks weren't offset by spending cuts or new revenue. Some consumer lobbies were pushing for additional amendments to aid homeowners and families, such as additional assistance for state and local governments or an extension of unemployment insurance.
Instead, the House is expected to consider separately a proposal to extend unemployment-insurance benefits. House leaders said there had been no deal cut to link the extension's passage to the financial-crisis bill.
By the time the bill reached the House—after passing by a 3-to-1 margin in the Senate (BusinessWeek.com, 10/1/08) on Wednesday—it had long ceased to be the spartan, three-page document Paulson sent to lawmakers two weeks ago, which gave him almost unfettered power to wade into the markets with $700 billion.
But the core of the measure remained a program to let the Treasury buy mortgages and related assets from financial institutions and, eventually, resell them to recoup costs. In the process, the Treasury hopes to restore activity in a credit market that had all but disappeared (BusinessWeek.com, 10/2/08) with the collapse of housing prices. The rescue, Paulson and Federal Reserve Chairman Ben Bernanke have argued, will prevent further deterioration in the credit markets and what President Bush has called a looming economic catastrophe.
Business Tax Breaks Included
Now blown up to more than 400 pages, the bill includes both elaboration on the original concept as well as dozens of essentially unrelated provisions. Soon after Paulson made his proposal, lawmakers added a series of oversight measures, requirements that the government take stakes in companies benefiting from the plan, and executive-pay restrictions for the companies; those provisions and most others added at the time remain largely intact.
But two major rounds of negotiations since then, intended to make the bill more palatable to a wider range of lawmakers, layered on several other provisions. They ranged from an alternative plan to insure assets instead of buying them—insisted upon by House Republicans but called unnecessary by Paulson—to a requirement that, if the buy-up program fails to break even in five years, Congress will come up with a plan to recoup losses from the financial industry.
The bill also includes a series of business tax breaks and extensions, many of them designed to encourage green-energy development, plus an extension of rules protecting millions of Americans from the Alternative Minimum Tax and expansion of federal deposit insurance from $100,000 per person per bank to $250,000. The whole thing is wrapped, partly for procedural reasons, in a bill that requires health insurers to treat mental-health care much as they do other medical problems, a long-sought Democratic priority.
Although much of the attention has centered on the $700 billion price tag, that is the most Treasury could invest at any one time. The agency is to get access to $250 billion initially, and an additional $100 billion on the President's certification that it's needed; Congress could block the final $350 billion. However, the amount functions much like a revolving credit line for the Treasury, letting it essentially reinvest proceeds gained from selling assets it had earlier acquired.