Home News Senate passes financial rescue plan; House to vote next

Senate passes financial rescue plan; House to vote next

Published on 02/10/2008

2 October 2008

WASHINGTON — The US Senate approved a USD 700-billion financial rescue package Wednesday night that members said was essential to keep the world’s largest economy from near-total collapse.

Senate leaders hoped the 74-25 vote would send a strong signal to the lower House of Representatives, which rejected an earlier version of the bail-out plan on Monday and sent US stocks into a free-fall.

"We have sent a clear message that we will not let this economy fail for any American," said Majority Leader Harry Reid, the top Democrat in the Senate.

Government officials and congressional leaders had warned that government intervention was critical to keep credit flowing from banks to average Americans and had warned that the US economy might not survive another legislative failure.

The House on Friday will take up the new version, which was hammered out between Democrats and Republicans over the last two days and was hailed as a show of bipartisanship in a time of crisis, despite a general election being only one month away.

President George W Bush praised Senate members for working across the aisle to pass legislation that was "essential to the financial security of every American."

It remains unclear whether the new bill, which increased government-backed guarantees on bank savings and added tax provisions to placate sceptical Republicans, is any more certain of passing the House on Friday.

"The American people expect, and our economy demands, that the House pass this good bill this week and send it to my desk," Bush said in a statement following the vote.

Democratic presidential nominee Barack Obama, who returned to the Senate for the vote along with his Republican rival John McCain, warned the bail-out was needed "to prevent a crisis from turning into a catastrophe."

At its core, the bill involves the government taking on up to 700 billion dollars in mortgage-backed securities that have plummeted in value and decimated the balance sheets of US and European financial institutions.

Financial institutions have sharply curbed lending to consumers and to each other amid fears about their own capital positions. The credit crisis has cost banks some USD 500 billion in write downs, led to a series of government takeovers and caused two of the largest bankruptcies in US history; Lehman Brothers Holdings Inc and Washington Mutual Inc.

Automakers Wednesday reported sharp drops in US sales as consumers found it more difficult to get approval for car loans. According to an analysis by CNW Marketing Research, the approval rate for car loans is down to 63 percent from 83 percent last year.

Democrats who control the Senate and minority Republicans were forced to work on a new deal after the House’s 228-205 vote against the rescue package on Monday. That bill was itself the product of nine days of tough negotiations between Congress and White House officials.

Monday’s defeat in the House was followed by one of the largest drops in Wall Street’s history and stock markets worldwide. Markets rallied Tuesday and traded only slightly lower Wednesday as investors awaited the outcome of the evening Senate vote.

Supporters on both sides of the aisle urged their colleagues to pass the latest rescue package, insisting it contained enough guarantees to protect taxpayers and should not be viewed as a no- strings bail-out of Wall Street investors.

"If the financial bill fails in Congress yet again, the present crisis will turn into a disaster," McCain had warned earlier Wednesday.

A Washington Post-ABC News poll Wednesday showed that most Americans believe there is a financial crisis, with about 90 percent concerned that Monday’s failure of the bill could prompt further decline. Still, just 45 percent supported the House version.

Supporters took pains Wednesday to frame what began on Wall Street as a threat to average Americans, endangering the availability of credit for everything from houses to cars to student loans and small businesses.

Senator Dianne Feinstein, a Democrat from California, acknowledged she had received 95,000 messages from constituents about the bail-out package – 85,000 of them negative – but warned, "We don’t have a choice."

But it also ran up against opposition from senators who believed taxpayers should have no part of a crisis that was brought on by Wall Street investors – reflecting some of the ideological divisions that torpedoed the legislation in the House just days earlier.

"This bill sends a message to Wall Street that if you play fast and loose for short-term profits, then the government will actually make up for your losses," said Florida Senator Bill Nelson, a Democrat.

Among the revisions added to the Senate legislation was an increase in government-backed guarantees for bank deposits from USD 100,000 dollars to USD 250,000. The increase will last one year.

Also included are extensions of tax credits for renewable energy and small businesses as well as changes to the Alternative Minimum Tax that hits the incomes of middle-class Americans.

By Chris Cermak    

[dpa / Expatica]