Bailout's Passed - Now What?

President Bush shakes hands with Treasury Secretary Henry Paulson at the Treasury Department in Washington after the House passed the $700 billion financial bailout bill, Oct. 3, 2008. (AP Photo/Charles Dharapak)
AP Photo/Charles Dharapak
Getting the financial rescue through Congress may have been the easy part. Getting it to work may prove the tougher task.

"The consensus of economists that I've talked to are saying we are now at the beginning of what is probably going to be a deep recession for the next six months," said CBS News correspondent Anthony Mason. "This bill had to pass to put a tourniquet on that - to hold it from getting worse - but the economy is going to go through a really rough ride."

Along with the bailout came news of the worst monthly job loss in five years, as employers shed 159,000 workers.

After two weeks of anguishing debate, Congress passed and President George W. Bush signed the enormous plan to save the financial industry and prop up the economy in hopes of avoiding an unthinkable free fall with Election Day just a month away.

Now the pressure's on Treasury Secretary Henry Paulson, who has just 45 days to figure out how to spend it, reports CBS News correspondent Kimberly Dozier. But Paulson's already admitted he doesn't have enough people to do it, so he plans to outsource the job to experts on Wall Street - essentially the folks who created the problem, reports Dozier.

Treasury Secretary Henry Paulson, at a meeting last month, had shocked congressional leaders into action by warning of pending economic collapse without immediate federal intervention. After the climatic House vote on Friday, he said aides already were working out details and lining up advisers from outside the government so the money could start flowing. The goal is to unfreeze credit markets.

The immediate response to the 263-171 vote was not promising. Wall Street, which plunged a record 778 points after the House initially rejected the bill last Monday, fell 157 points. More economic bad news - a jump in job losses - outweighed the good news from Capitol Hill.

"Congress took a big step in the direction of at least giving us the tools necessary to bring some stability into the marketplace," Bush said Saturday while visiting Midland, Texas, his boyhood hometown.

Earlier, in his weekly radio address, Bush spoke cautiously about the economy's future. "My administration will move as quickly as possible, but the benefits of this package will not all be felt immediately. The federal government will undertake this rescue plan at a careful and deliberate pace to ensure that your tax dollars are spent wisely," he said.

Bush acknowledged that people are worried about their personal finances. "I'm confident by getting our markets moving, we will help unleash the key to our continued economic success: the entrepreneurial spirit of the American people," he said.

House Republican leader John Boehner of Ohio said lawmakers knew that if they failed to act, the crisis probably would worsen and "put us in a slump the likes of which most of us have never seen." The bailout, said House Speaker Nancy Pelosi, a California Democrat, is intended to help address "the real pain felt by Mr. and Mrs. Jones on Main Street."

The Bush administration gained broad authority to buy up toxic mortgage-related investments and other distressed assets from shaky financial institutions. The hope is it will restore confidence in markets and thaw a near-freeze in credit availability that has begun to affect the ability of banks to lend, businesses to obtain money for payrolls and investments, and individuals to gain credit to buy a home or a car.

In an attempt to aid smaller banks with serious liquidity problems, the measure raises the ceiling on federally insured deposits from $100,000 to $250,000. It increases federal oversight over Wall Street transactions and assures that chief executives whose companies benefit from the bailout do not leave with huge golden parachute payoffs.

Last Monday, despite pleas from Bush and his financial advisers and the support of congressional leaders, the House voted 228-205 to reject the rescue plan. Stock markets around the world plunged, then recovered somewhat as economists warned that the U.S. was facing its gravest economic threat since the Great Depression.

But the 95 Democrats and 133 Republicans who voted against the bill were responding to a deluge of calls and messages from constituents demanding defeat of the plan. Many saw it as a $700 billion giveaway to Wall Street when average people were getting no help.

Shortly before recessing for the election, senators stepped in and approved legislation Wednesday that linked the rescue to the extension of popular tax breaks for research and development, renewable energy and victims of natural disasters. The $110 billion in additions included benefits parity for people with mental health problems. The Senate also added the boost in the ceiling for bank deposits.

Those extras were enough to sway some House members who voted "no" the first time around. Others were swamped by calls from business and political leaders warning of the possible consequences of inaction.

California Gov. Arnold Schwarzenegger sent out a letter that said without a clear resolution to the crisis, his state and others "may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal Treasury for short-term financing."

The treasurer of Massachusetts, prompted by the state's inability to borrow from the short-term debt markets, has asked the federal government about lending Massachusetts money under the same favorable terms it has given banks and firms during the financial crisis.

Democrat presidential nominee Barack Obama spoke to many in the Congressional Black Caucus and helped persuade 13 to switch their votes. Nine freshmen Democrats also switched to "yes" votes after a conference call with Obama in which he promised an economic stimulus bill would be a top priority if he is elected.

Republican John McCain also lobbied for the measure, according to aides who declined to release a list of lawmakers he called.

All told, Democrats had 33 converts to the plan while 25 Republicans switched their vote, reports CBS News correspondent Bob Orr. In the end, 91 Republicans joined 172 Democrats to support the measure while 108 Republicans and 63 Democrats voted 'no."'

The global nature of the crisis was underscored by a hastily arranged European summit, which kicked off in Paris Saturday. British Prime Minister Gordon Brown called on his counterparts to do "whatever is necessary" to protect strong banks and restore stability.

But French President Nikolas Sarkozy announced that the EU will continue taking a country by country approach, though nations would try to coordinate efforts across borders so that actions in one country would not adversely effect another, reports CBS News correspondent Mark Phillips.