Robbery Bailout: Empire strikes back


Richard Moore

October 1, 2008

Senate to Vote Wednesday on Bailout Plan


WASHINGTON — Senate leaders scheduled a Wednesday vote on a $700 billion financial bailout package after accepting tax breaks and a higher limit for insured bank deposits in a bid to win House approval and send legislation to President Bush by the end of the week.

Top lawmakers said the Senate proposal, worked out after a day of behind the scenes maneuvering, would include tax breaks for businesses and alternative energy and higher government insurance for bank deposits.

“It has been determined, in our judgment, this is the best thing to move forward,” said Senator Harry Reid, Democrat of Nevada and the majority leader, in announcing the surprise move.

The senators issued no details of their proposal and said none would be available until Wednesday. The lawmakers were gambling that the tax package would appeal to lawmakers who helped sink the measure in the House on Monday, without driving off Democrats who have opposed extending the tax incentives without offsetting spending cuts elsewhere.

House Democratic leaders reacted cautiously to the new approach, with Representative Steny H. Hoyer of Maryland, the majority leader and a chief advocate of paying for the tax breaks, saying, “I am talking with my House colleagues about the Senate action and how to best proceed.”

But House Republican leaders, who said they had been advised about the Senate plan, said the new elements would appeal to their rank-and-file, which voted strongly against the legislation Monday. A spokesman for Representative John A. Boehner of Ohio, the Republican leader, said that “Mr. Boehner was consulted and gave the green light.”

Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Senate banking committee, said the Senate decided to move quickly, citing signs of regret from some House members after the markets plunged in response to their initial vote.

“I think their will is coming back having heard from their constituents,” Mr. Dodd said.

Lawmakers said the stock market response to the rejection was a sobering experience that could enhance prospects for a revised plan. Some anxiety lifted on Tuesday, as the Dow Jones industrial average rose 485 points, regaining more than half of the 778 points it lost on Monday.

Still, deep concern remained about credit markets, as the rate that banks charge one another shot higher — to a record high by one widely used measure — making borrowing more difficult.

President Bush joined the two major presidential candidates, Senators John McCain and Barack Obama, in calling for quick action to stabilize the markets and avoid what Mr. Bush characterized as the threat of “painful and lasting” damage to the economy.

Both presidential candidates and the Bush administration also endorsed the increase in bank deposit insurance.

On the morning after the sell-off on Wall Street, Congressional offices reported a shift in angry calls from constituents, with some now demanding that lawmakers take some corrective action — a distinct change from the outpouring of public opposition that contributed to the defeat of the plan.

“I started hearing from a lot of people who lost money on their investments thanks to the big drop on Wall Street yesterday,” said Representative Steven C. LaTourette, Republican of Ohio, who voted against the plan.

As they explored ways to tinker with the proposal in consultation with the Bush administration, all sides agreed any revisions would not change the underlying concept of granting the Treasury Department access to up to $700 billion to purchase — and eventually resell — troubled securities that were clogging the financial system.

It was a delicate balancing act for the architects of the proposal who had to be careful that in adding elements to entice new support they did not lose the support they already had.

“Obviously you don’t want to do something to lose votes,” said Senator Kent Conrad, Democrat of North Dakota, who was among Senate Democrats who huddled Tuesday to discuss possible alterations in the proposal.

Speaker Nancy Pelosi was noncommital about the new Senate plan Tuesday night, but other Democrats said it might be difficult to reject given the crisis and the array of tax breaks. “The Senate will vote tomorrow night, and the Congress will work its will,” Ms. Pelosi said. .

House officials spent much of Tuesday considering their own changes, including an extension of unemployment pay and a $1,000 tax credit for less affluent homeowners.

But those plans are not likely to advance given the Senate decision. While the Senate left the door open slightly to other additions to the bill, such revisions would need the agreement of the full Senate, and the House proposals were likely to be blocked by Senate Republicans.

“Opening this up all over again to other things may doom it,” Mr. Dodd cautioned.

The Senate proposal would cost more than $100 billion and extend and expand many individual and business tax breaks, including tax credits for the production and use of renewable energy sources, like solar energy and wind power.

The bill would also extend the business tax credit for research and development, expand the child tax credit, protect millions of families from the alternative minimum tax and provide tax relief to victims of recent floods, tornadoes and severe storms.

Members of the House and the Senate said the bill would create tens of thousands of jobs and reduce the nations’ dependence on foreign oil. But the two chambers have been at odds over whether and how to offset the cost of extending the many tax breaks covered by the legislation. The major obstacle has been Representative Hoyer of Maryland and other centrist Democrats.

Senate and House leaders had been debating whether the Senate, where support for the proposal runs deep, should vote first to provide some momentum for a second vote across the Capital Rotunda. Some senators were leery of going on the record if the legislation could not prevail in the House, but others backed the idea of the Senate taking the lead.

“I would support the Senate going first, which we would be willing to do as early as tomorrow if that would make this process successful,” Senator Hillary Rodham Clinton, Democrat of New York, said in a conference call on Tuesday.

With no new vote in the House even possible before lawmakers reconvene Thursday at noon, strategists for both parties spent Tuesday poring over tally sheets from Monday afternoon’s 228-to-205 outcome, trying to identify lawmakers who could be persuaded to switch their votes.

But winning over some determined opponents was not going to be easy.

“It was one of the best votes of my career,” said Representative Peter A. DeFazio of Oregon, leader of a group of liberal Democratic opponents of the Treasury plan who on Tuesday proposed a series of regulatory and legislative alternatives to the bailout.

But those Democratic opponents did say that they would be willing to back an increase to $250,000 from $100,000 in the amount of a bank deposit that would be insured by the federal government — an idea that on Tuesday gained fast currency as a consensus change in the initial plan.

Mr. Obama and Mr. McCain embraced the deposit insurance proposal early Tuesday, setting off a bit of a political tiff over who deserved credit for initiating it. House Republicans claimed to have offered the insurance increase in weekend negotiations over the plan only to have it rejected.

Democrats said they had no recollection of that provision being brought up in the chaotic talks, but top Democratic Congressional aides said the leadership was willing to add it to the bill and knew of no opposition. The chief uncertainty was whether it would significantly enhance the outlook for the legislation.

“Everybody is on board,” said one top House aide who spoke on condition of not being identified when talking about internal deliberations. “The question is, how many votes does it bring?”

With the House in recess for the observance of Jewish religious holidays, lawmakers consulted via conference call on their ideas for improving the legislation.

“Some will feel very virtuous about having voted against Wall Street and then turn around and find their constituents, generally, paid a huge price for that vote,” said Senator Robert Bennett, Republican of Utah, in exhorting his colleagues to “rise to the occasion” and pass the bill.

“I have faith that the members of the House and the members of the Senate will ultimately recognize their responsibility and do the right thing.”

Trying to calm the markets, Ms. Pelosi and Mr. Reid, the majority leader, released a letter to Mr. Bush, saying, “Working together, we are confident we will pass a responsible bill in the very near future.”

Senator Mitch McConnell of Kentucky, the Republican leader, was even more emphatic. “This financial crisis is going to be dealt with by Congress, and it’s going to be dealt with by Congress this week,” Mr. McConnell told reporters.

David M. Herszenhorn, Matt Saltmarsh, Sharon Otterman, Martin Fackler, Robert Pear, Steven Lee Myers, Sheryl Gay Stolberg and Graham Bowley contributed reporting.

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