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The New York Stock Exchange.

Senate Passes Bailout; House Vote Looms

October 02, 2008 07:59 AM
by findingDulcinea Staff
The Senate voted in favor of a revised $700 billion bailout plan Wednesday night, fortified with new incentives for the House, which will vote on the new version Friday.

Revised Bailout Agreement Clears Senate

The Senate passed the bailout package on Wednesday night by a vote of 74-25, as the majority of Republicans and Democrats agreed to the revised bill. The future of the bailout plan now rests with the House of Representatives, which had rejected a version of the bill on Monday but will vote again Friday morning.

Although the new bill, replete with tax cuts, might appear more palatable to House members who had opposed the first bill, rejection is still a possibility. Under the new plan, the limit for federally insured bank deposits increases from $100,000 to $250,000. The bill would also change the eligibility threshold for the alternative minimum tax (AMT), sparing approximately 24 million households from paying a collective $62 billion in taxes. If passed it will also “extend $17 billion in benefits to companies that produce alternative energy,” according to Bloomberg.

“Some of the changes appeared aimed at enticing specific lawmakers to change their votes to ‘yes,’” the Baltimore Sun writes, including a provision to increase mental health insurance coverage, favored by Rep. Jim Ramstad, R-Minn. Also, a provision to give tax breaks to the Hollywood film industry is meant to appeal to Democratic Reps. Adam Schiff and Brad Sherman of California, both of whom opposed the original bill.

One of the tax breaks included in bill removes a “39-cent excise tax on wooden and fiberglass arrows designed for children,” according to The Philadelphia Inquirer. The provision, proposed by Oregon Sens. Ron Wyden and Gordon H. Smith would allow the Rose City Archery company in Myrtle Point, Ore., to hold onto $200,000 a year.

Both presidential candidates approved the 451-page bill, which was fattened-up from the Treasury Department’s 3-page original proposal, and the 110-page plan that the House rejected Monday.

To diffuse complaints from constituents who oppose the bailout, senators in support of the bill pointed to the Dow Jones’ 778-point plunge following Monday’s House vote. “The big drop” in the Dow “really had a chilling effect on a lot of our members and a lot of their constituents,” said House Republican Leader John Boehner, Bloomberg reports. With the Senate revisions, the legislation now “has a much better chance” of passing in the House this time, he said.

But the new tax cuts might be unappealing to many House Democrats who are concerned about the deficit, and the new incentives may not sway the opinions of some House Republicans.

“Many around here are finding comfort in the notion that ‘something is better than nothing.’ I believe that is a false choice,” said Sen. Richard Shelby of Alabama, of the Senate Banking Committee, according to the Baltimore Sun.

Background: House rejects previous version; McCain suspends campaign

Earlier this week, the House narrowly rejected a $700 billion bailout proposal.

It was the defeat heard round the world, causing the Dow to plunge more than 700 points, its biggest one-day drop in history. Markets in Australia and Japan also had record losses Monday, though European markets were up on Tuesday as Wall Street recovered from the shock.
The House defeat surprised many, despite the fact that Republicans criticized the plan, and White House meetings with Congressional leaders to determine the details were described as “contentious.”

Some legislators, especially those in the House, were worried about what any proposed Wall Street bailout would cost the average American, or “Main Street.”

The bailout has changed the face of the presidential election as the economy overtakes Iraq and national security as voters’ top concern.

Last week, Sen. John McCain announced he’d suspend his campaign to help solve the crisis, and called on Sen. Barack Obama to do the same. McCain also asked that the first presidential debate be postponed. Both candidates flew back to Washington to meet with the president and congressional leaders, but Friday night’s debate went on as scheduled. Some pundits wondered whether McCain made the right choice.

Opinion & Analysis: The state of the bailout

The New York Times argues that the “sweetened” bailout bill does not address the fundamental economic problems associated with the plunging housing prices. “Leaving these Americans out of the bailout bill is unwise and unfair, but neither Congress nor the Bush administration has ever shown anywhere near the sense of urgency to rescue homeowners at the bottom of the collapse as they have for the financiers at the top of it,” according to the Times.

The San Francisco Chronicle, however, praises the Senate on its approval of a "necessary" bailout plan that “has been improved substantially.” The newspaper said, “The way the senators came together, in somber and serious deliberation, was in stark contrast to the partisan sniping that followed the demise of a bailout package in the House of Representatives.”

Many congressmen are optimistic that the House will pass the revised bailout bill with its new provisions, Gerard Baker of The Times of London notes. “But after the extraordinary events of the last week, when the bailout failed twice—once in a tempestuous White House meeting, once in an escalating blur of chaos in the House of Representatives—no-one was willing to stake too much on that wager.”

Despite what happens from this point on, Congress’ recent actions have been reprehensible, according to Winslow T. Wheeler of Politico. He describes the House of Representatives as a “dysfunctional mess” and said the Senate is in “complete shambles.” He claims the House no longer has the strength to muster up votes for important legislation, and the Senate, bereft of oversight, needs to enact “crude parliamentary gimmicks.” He claims that the “crisis will pass,” but “nothing will change,” as the same congressmen remain in power.

Historical Context: Previous U.S. government bailouts

The U.S. government had to step in to loan money to flailing industries before, but the most they ever spent at once was an estimated $153 billion for the 1980s savings and loan crisis.

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