Congressional leaders, President Bush and the two rivals to
succeed him rummaged through ideas new and old Tuesday, desperately
seeking to change a dozen House members’ votes and pass a
multibillion-dollar economic rescue plan. At the top of the list:
Raise confidence in the banking system by increasing the
government’s insurance.
Congressional leaders, President Bush and the two rivals to succeed him rummaged through ideas new and old Tuesday, desperately seeking to change a dozen House members’ votes and pass a multibillion-dollar economic rescue plan. At the top of the list: Raise confidence in the banking system by increasing the government’s insurance.
In addition, there was talk of making it easier for financial institutions to hold questionable long-term assets, an idea embraced by some of the House Republicans who slapped down the bailout bill and sent stocks tumbling on Monday. Wall Street regained hope on Tuesday, and the Dow Jones industrials rose 485 points, making up a good bit of the ground lost in the 778-point plunge.
Congressional leaders hope the changes under discussion – or a few others that could be in the mix – will be enough to persuade as few as six House Republicans and six Democrats to undo Monday’s stunning vote that rejected a proposed $700 billion rescue.
With the Capitol largely quiet because of the Jewish new year, no overall plan appeared to jell just yet.
Some lawmakers suggested the Senate might approve its own version on Wednesday, presumably with a few changes to the failed House bill, and then give the House a new crack at the legislation before the week is out.
Still, the House is where the problems are, and leaders there were scrounging for ideas that might appeal to a few of the 133 Republicans and 95 Democrats who rejected the proposal on Monday.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., told reporters, “I’m told a number of people who voted ‘no’ yesterday are having serious second thoughts about it.” He added, however, “There’s no game plan that’s been decided.”
Senate Republican Leader Mitch McConnell of Kentucky said it was time for all lawmakers to “act like grown-ups, if you will, and get this done for all of the people.” He predicted a bill would pass this week, although the House, not the Senate, is the focus of the dispute.
The idea drawing the biggest support was to raise the federal deposit insurance limit, now $100,000 per account, to $250,000. Several officials, including presidential nominees John McCain and Barack Obama, endorsed the change.
So did the agency that runs the program.
Within hours of the candidates’ separate statements, Federal Deposit Insurance Corp. chairman Sheila Bair asked Congress for temporary authority to raise the limit by an unspecified amount. That could help ease a crisis of confidence in the banking system, Bair said.
She said the overwhelming majority of banks remain sound but an increase in the cap would help ease a crisis of confidence in the banking system as well as encourage banks to begin more lending.
Monday’s House vote was a stinging setback to leaders of both parties and to Bush. The administration’s proposal, still the heart of the legislation under consideration, would allow the government to buy bad mortgages and other deficient assets held by troubled financial institutions. If successful, advocates of the plan believe, that would help lift a major weight off the already sputtering national economy.
But the proposal ignited furious responses from thousands of Americans, who flooded congressional telephones. The final House vote, 228-205 against the plan. Some lawmakers reported a shift in constituent calls pouring into their offices Tuesday after the record stock market decline.
Bush renewed his efforts, speaking with McCain and Obama and making another statement from the White House. “Congress must act,” he declared.
Though stock prices rose, more attention was on credit markets. A key rate that banks charge each other shot higher, further evidence of a tightening of credit availability.
Bush was talking about everyday Americans on Tuesday, not banks or other financial institutions. And no supporters were using the word “bailout.”
The president noted that the maximum $700 billion in the proposed bailout was dwarfed by the $1 trillion in lost wealth that resulted from Monday’s stock market decline.
“The dramatic drop in the stock market that we saw yesterday will have a direct impact on retirement accounts, pension funds and personal savings of millions of our citizens,” Bush said. “And if our nation continues on this course, the economic damage will be painful and lasting.”
“I recognize this is a difficult vote for members of Congress,” Bush said. “But the reality is we are in an urgent situation and the consequences will grow worse each day if we do not act.”
Republicans said the FDIC proposal might attract some conservatives who want to help small business owners and avert runs on banks by customers fearful of losing their savings.
Another possible change to the bill would modify “mark to market” accounting rules. Such rules require banks and other financial institutions to adjust the value of their assets to reflect current market prices, even if they plan to hold the assets for years.
Some House Republicans say current rules forced banks to report huge paper losses on mortgage-backed securities, which might have been avoided.
Liberal Democrats who opposed the bill are suggesting other changes. Their ideas include banning some forms of “short selling,” in which investors bet that a stock’s value will drop. Republicans showed little interest.
The rescue package was Topic A on the presidential campaign trail.
“The first thing I would do is say, ‘Let’s not call it a bailout. Let’s call it a rescue,'” McCain told CNN. He said, “Americans are frightened right now” and political leaders must give them an immediate solution and a longer-term approach to the problem.
Obama issued a statement saying that significantly increasing federal deposit insurance would help small businesses and make the U.S. banking system more secure as well as restore public confidence.
The bill’s defeat in the House came despite furious personal lobbying by Bush and support from House leaders of both parties. But ideological groups on the left and the right organized against it. Even pressure in favor of the bill from some of the biggest special interests in Washington, including the U.S. Chamber of Commerce and the National Association of Realtors, could not sway enough votes.
