Friday October 3, 6:02 pm ET
By Julie Hirschfeld Davis, Associated Press Writer
Congress enacts historic bailout legislation for financial industry; Bush quickly signs it
WASHINGTON (AP) — With the economy on the brink of meltdown and elections looming, a reluctant Congress abruptly reversed course and approved a historic $700 billion government bailout of the battered financial industry on Friday. President Bush swiftly signed it.
The 263-171 vote capped two weeks of tumult in Congress and on Wall Street, punctuated by urgent warnings from Bush that the country confronted the gravest economic disaster since the Great Depression if lawmakers failed to act.
“We have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country,” Bush said shortly after the plan cleared Congress, although he conceded, “our economy continues to face serious challenges.”
His somber warning was underscored on Wall Street, where enthusiasm over the rescue gave way to worries about obstacles still facing the economy, and the Dow Jones industrials dropped 157 points. The Labor Department said earlier in the day that employers had slashed 159,000 jobs in September, the largest cut in five years.
The historic vote was a striking turnaround from the measure’s spectacular failure earlier in the week, which had triggered a massive stock sell-off and prompted jittery lawmakers — fearing a crushing economic contagion that was spreading to their constituents — to reconsider.
“Let’s not kid ourselves: We’re in the midst of a recession. It’s going to be a rough ride, but it will be a whole lot rougher ride” without the rescue plan, said Rep. John A. Boehner, R-Ohio, the minority leader, as he prepared to cast his vote for the most sweeping federal intervention in markets in decades.
Treasury Secretary Henry Paulson pledged quick action to get the program up and operating.
The bailout, which gives the government broad authority to buy up toxic mortgage-related investments and other distressed assets from tottering financial institutions, is designed to ease a credit crunch that began on Wall Street but is engulfing businesses around the nation.
“In these past two weeks, we’ve seen things we never thought we would see before in terms of the economic insecurity of our own country,” said House Speaker Nancy Pelosi, D-Calif. She said the measure would “begin to shape the financial stability of our country and the economic security of our people.”
Rep. Barney Frank, D-Mass., the Financial Services Committee chairman, said the rescue bill was just the beginning of a much larger task Congress will tackle next year: overhauling housing policy and financial regulation in a legislative effort he compared to the New Deal.
“We were the EMTs rushing to the rescue of an economy that suddenly found itself choking, but now we have to perform more serious reform,” Frank said.
Just four days earlier, the previous version of the bill was sent down to defeat, largely at the hands of angry conservative Republicans. On Friday, a total of 33 Democrats and 25 Republicans switched from opposition to support. In all, 91 Republicans joined 172 Democrats to support the measure while 108 Republicans and 63 Democrats voted “no.”
The reversal reflected a high-stakes political environment just four weeks before Election Day. Some lawmakers were worried about their own jobs, but others — mostly Democrats — focused on the prospect that a new president could have a far more significant effect on the economy than any one piece of legislation.
Several of the Democratic switchers were members of the Congressional Black Caucus who said they changed course after securing commitments from presidential candidate Barack Obama that he would back legislation to help struggling consumers and homeowners facing foreclosures if he wins the White House.
“It’s not too often you get the future president telling you that his priority matches your priority,” said Rep. Elijah Cummings, D-Md., one of 13 black lawmakers who switched from “no” to “yes.”
Republican presidential candidate John McCain also lobbied for the measure, according to aides who declined to say whom he called.
Rep. Roy Blunt, R-Mo., the party vote-counter, said McCain phoned Rep. John Shadegg, a fellow Arizonan who switched to “yes.”
The legislation’s roller-coaster ride through Congress began at a somber meeting in Pelosi’s office in mid-September, where Paulson and Federal Reserve Chairman Ben Bernanke frightened senior Democrats and Republicans with their warnings of an impending economic collapse without quick legislative action.
As lawmakers scrambled to draft a bill, they were barraged by angry calls from constituents to reject what many saw as a huge giveaway to the very financial institutions that helped cause the subprime mortgage meltdown at the root of the economic crisis — with nothing to help its ordinary victims.
“Pray for our republic,” intoned Rep. Marcy Kaptur, D-Ohio, a leading opponent of the measure. “She’s being placed in very uncaring and greedy hands.”
Supporters said the prospect of economic disaster superseded their political fears.
“I may lose this race over this vote, but that’s OK with me,” said Republican Rep. Sue Myrick of North Carolina, who switched her vote to favor the measure. “This is the right vote for the country.”
After the breathtaking House defeat on Monday, Senate leaders took custody of the rescue, adding on $110 billion in tax breaks designed to attract additional support. They attached the overall measure to a popular bill mandating broader mental health coverage in the insurance industry.
The rescue measure was changed to lift, from $100,000 to $250,000, the cap on government bank deposit insurance — a key priority for Republicans. Also key to winning GOP support was a decision by the Securities and Exchange Commission to ease accounting rules that require financial institutions to show the deflated value of assets on their balance sheets.
The revised measure won Senate approval Wednesday night, 74-25, setting up a furious round of lobbying in the House as the administration, congressional leaders, the presidential candidates and outside groups joined forces behind the measure.
The maneuvers worked — augmented by a shift in public opinion that occurred after the stock market took its largest-ever one-day dive on Monday.
The plan — initially a three-page request from the Bush administration for unlimited power to use $700 billion any way it saw fit to stabilize markets — swelled to more than 450 pages as negotiators added restrictions for the administration and sweeteners for anxious members of Congress.
Lawmakers added greater supervision over the $700 billion — including a process where Congress could vote to block half the money — measures to protect taxpayers, and steps to crack down on “golden parachutes” for corporate executives whose companies benefit from the bailout.