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FINANCIAL CRISIS: REGROUPING ON CAPITOL HILL

Hopes hang on bailout tweaks

Changes, including a big deposit insurance hike, are crafted to attract crucial votes. Senate is to act today.

October 01, 2008|Richard Simon, Jim Puzzanghera and Nicole Gaouette | Times Staff Writers

WASHINGTON — Senate leaders reached consensus late Tuesday on a revised $700-billion financial rescue plan that they hoped would clear the chamber in a vote today and ward off another upheaval in global markets that could threaten economies here and abroad.

Presidential nominees Sens. John McCain (R-Ariz.) and Barack Obama (D-Ill.), along with Obama's running mate, Sen. Joe Biden (D-Del.), were expected to fly to Washington for the vote, a move that could increase the pressure on lawmakers to back the measure.

Spurred by banking regulators, the Senate bill includes a big hike in the limit on federally insured deposits to $250,000 from the current $100,000 cap. The bill also includes popular tax-relief measures. An effort is underway to add some accounting relief for companies that have to revalue mortgage-related holdings.

"We're facing a choice between action and the real prospect of economic hardship for millions of Americans," President Bush said.

Leaders expect the Senate to vote this evening and the House, which dealt a crushing blow Monday to bailout hopes by defeating the bill, to take up the issue as early as Thursday.

"I don't think you're going to see a lot of change in the bill we put up," a member of the House Democratic leadership said, speaking on condition of anonymity because of the delicacy of the negotiations.

"We'll make tweaks both for Republicans and Democrats, but we'll probably have on the floor a bill that doesn't look very different," the official said.

The new version also is likely to include stronger protections for homeowners facing foreclosure and possibly language sought by Republicans to discourage excessive government intervention in markets, the official said.

Hope for further congressional action pushed the markets higher Tuesday. The Dow Jones industrial average soared nearly 500 points, recouping much of the 777-point loss on Monday, the largest single-day drop, after the House vote.

Despite an eerie, morning-after quiet that enveloped Capitol Hill because of a Jewish holiday, leaders' offices were bombarded by critics on the left and right with demands for new approaches to relieve the financial crisis.

But strategists in both major parties opted for a much less drastic approach to avoid the protracted wrangling and new shocks to global markets that could come if they started over from scratch. They decided to try attracting the relative handful of votes needed for approval by offering modest concessions such as the temporary boost in deposit insurance and a possible easing of accounting rules.

Hanging over their efforts was the fear that, with millions of Americans angry over what they see as an undeserved bailout of wealthy investors, the country could slide into an economic debacle before they could muster public support for corrective action.

Top Senate Democrats and Republicans appeared together on the Senate floor and pledged to work to pass the measure before Congress adjourns for the fall campaign.

"Despite yesterday's setback in the House of Representatives, this continues to be our No. 1 goal," Senate Majority Leader Harry Reid (D-Nev.) said.

In a further attempt to build support in the Senate, leaders agreed Tuesday to attach to the bailout package a Senate-passed tax measure that would provide incentives for developing renewable energy, shield an estimated 20 million Americans from paying the alternative minimum tax and extend a number of expiring tax cuts for businesses and families.

"I said from the beginning that the administration's original financial plan focused too much on Wall Street and not enough on Main Street," said Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee.

Although they may help win passage in the Senate, the added provisions face an uncertain future in the House and could further delay agreement on rescue legislation.

House Minority Leader John A. Boehner (R-Ohio) welcomed calls from both major presidential nominees for raising the cap on insured deposits, noting that it had been proposed by House Republicans during negotiations but rejected by Democrats.

The broad goals of a rescue plan are to help banks and other financial institutions deal with the billions of dollars in underwater mortgage-backed securities that now clog their books and endanger their viability, as well as to thaw frozen credit markets that businesses need to conduct normal operations.

Thus far, both problems have been most clearly visible in the world of global markets and such huge financial institutions as mortgage-finance giants Fannie Mae and Freddie Mac, but economists warn that problems will quickly spread to the rest of the economy, raising the likelihood of a severe recession, more job losses and erosion of personal financial security.

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