Final passage came on a 263-171 vote in the House, which just four days before had rejected the proposal, sending Wall Street into a tailspin.
“The consequences of our not acting are overwhelming,” said House Minority Leader John Boehner (R-Ohio) in a final appeal to fellow conservatives who undercut passage Monday. “Let’s not kid ourselves. We’re in the middle of a recession. It’s going to be a rough ride, but it will be a whole lot rougher ride if we don’t pass this bill.”
It was precisely two weeks ago that Treasury Secretary Henry Paulson first outlined the administration’s plan to inject hundreds of billions into the markets by buying up troubled mortgage related assets to relieve a credit crunch threatening the larger U.S. economy. Leading economists remain divided about the wisdom of the policy, and the huge cost triggered a populist anti-Wall Street fury among many taxpayers. But amid continued turmoil in equity and credit markets, even early critics concluded that the failure to act was more perilous to the American economy than following Paulson’s course.
“On Monday I cast a blue collar vote for the American people, shook the foundations of Wall Street, demanding more accountability,” said Rep. Zach Wamp (R-Tenn.) in opening debate. “But today I’m going to cast a red-white-and-blue collar vote, with my hand over my heart for this country because things are really bad and we don’t have any choice.”
Rep. John Lewis (D-Ga.), a second “no” vote Monday, quickly followed in announcing his support, and after taking a sometimes “hands-off” approach Monday, Democrats showed a new determination to get the job done. “She’s not going home without a bill,” Rep. John Larson (D-Conn.) told Politico, pointing toward House Speaker Nancy Pelosi’s office. And behind-the-scenes Democratic presidential candidate Barack Obama played an influential role, calling individual members, such as Rep. Elijah E. Cummings (D-Md.), who announced Friday he would vote for the bill.
Both parties came through strong in delivering vote switchers. Democrats increased their “yes” votes from 140 to 172, while Republicans increased their ranks from 65 to 91 on the prevailing side. There were 108 “no” votes on the Republican side while 63 Democrats voted against the legislation.
Monday’s 228-205 defeat in the House sent Wall Street into a tailspin, followed by a bipartisan effort to jump-start the process again in the Senate, which approved the plan 74-25 Wednesday night. Along the way, popular tax breaks and aid to rural schools were added to win support, at a cost of more than $105 billion next year. And to reassure middle-class families scared by bank failures, the bill temporarily raises federal insurance for savings deposits of up to $250,000 — compared with $100,000.
Going forward now, Treasury will have immediate authority to invest $250 billion and little trouble getting a second installment of $100 billion. But Paulson will be subjected to much greater oversight than he first proposed, and a future Congress could potentially deny any funding beyond the first $350 billion authorized in the legislation.
Taxpayers are promised a greater chance to gain some equity interest in the companies benefiting from the government aid. And new restrictions are imposed on executive pay and severance packages for those firms that sell more than $300 million in securities to the government.
Treasury official admit that it will take sevral weeks to begin to put the program into effect. And together with Federal Reserve Chairman Ben Bernanke, Paulson is exploring how best to use new auction mechanisms to not only guide the government’s investments but also shed new light on the real value of assets suppressed to “fire sale" prices after the collapse of the U.S. housing bubble.
As a practical matter, Treasury will also have to sell bonds to raise the money, meaning Paulson’s early investments may be limited to just $50 billion a month. And for this reason, the real future of the initiative could rest on whomever succeeds President Bush in January.