Bailout bill gaining ground in House

David R. Sands and Kara Rowland
Friday, October 3, 2008

WASHINGTON (AP) --- An unprecedented government bailout of the financial industry is gaining ground in the House after a week of tumult on Wall Street and in Washington. Leaders in both political parties express optimism that the $700 billion measure will clear Congress by day's end. President Bush is waiting to sign it.

The legislation cleared a key hurdle in the House on a vote of 223-205.

And with the economy showing fresh weakness, an Associated Press tally shows 16 lawmakers who sent an earlier bailout bill to unexpected defeat on Monday had changed their minds and would vote in favor of the revised legislation. Officials said changes made to the measure had sparked a far smaller number of defections among previous supporters.

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House leaders began deliberating on the $700 billion rescue package, and expected to vote on the bill Friday.

Thursday, President Bush worked with House leaders frantically to sway enough lawmakers to prevent a repeat of the Wall Street bailout defeat that sent markets tumbling earlier this week, cautiously predicting success of the $700 billion package.

Congressional leaders expressed quiet confidence they would have the votes to send the measure to President Bush for his signature by day's end, four days after an earlier version was rejected.

"Our economy is not stable. Working families are suffering. Unemployment is over 10 percent in my district," said Rep Hilda Solis. The California Democrat voted against the measure that failed on Monday, but this time, she said she was considering a switch.

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Late Thursday night, House Majority Leader Steny H. Hoyer said debate on the bill would begin Friday morning, a signal that leaders thought they had the votes to win passage of the measure.

"I will be pretty confident we have enough votes before I put [the bill] on the floor," Mr. Hoyer said earlier in the day, insisting that inaction was not an option at a time when markets need a message of confidence.

At least five members who had opposed the original plan said they would now support it, leaving backers just seven short of a majority. An even larger bloc of more than a dozen lawmakers who voted "no" on Monday said they were prepared to switch if the initial payout under the plan was sharply cut and if pork spending projects added by the Senate Wednesday night were stripped from the bill.

That won't happen.

House leaders late Thursday blocked an amendment proposed by Rep. Steven C. LaTourette, Ohio Republican, fearing changes to the Senate version would slow the legislative process amid global market uncertainty.

The stock markets tumbled again Thursday, with the Dow Jones Index losing 348 points, or 3.2 percent, while the broader Standard & Poor's Index of 500 stocks was off 46 points, or just over 4 percent.

Adding pressure on lawmakers to act, a government report issued Thursday found that new orders at U.S. factories fell by an unexpectedly steep 4 percent in August, the sharpest decline since October 2006. Credit markets, meanwhile, remained stressed and largely closed for businesses.

While Wall Street investors and economists seem convinced that the bailout package would improve the financial situation, many academics and economists outside New York continued to criticize the bill.

"The Bush administration is once again using fear to scare people into supporting a dangerous course," said Timothy A. Canova, associate professor at the Chapman University School of Law. "Without help for the bottom of the pyramid, Wall Street will be back next year asking for another trillion dollars."

A coalition of conservative Republicans and liberal Democrats defied their party leaders and stunned global financial markets in Monday's House vote. The bailout bill was defeated despite warnings from Treasury Secretary Henry M. Paulson Jr. and private analysts that failure to act could cause global markets to seize up and create financial havoc on both Wall Street and Main Street.

The White House and congressional leaders had hoped Thursday's 74-25 Senate vote in favor of the bill would give it new momentum in the House. At least four Republican "no" votes — Rep. Zach Wamp of Tennessee, Rep. John Shadegg of Arizona, Rep. Jim Ramstad of Minnesota and Rep. Ileana Ros-Lehtinen of Florida — announced they intended to vote for the bill, as did Rep. Emanuel Cleaver II, Missouri Democrat.

Even some opponents of the bill said it appeared that the pressure from party leaders, the White House and the markets had taken its toll.

"I think probably the fix is in," Rep. Peter A. DeFazio, Oregon Democrat, said in an interview on MSNBC. "Probably the bill passes now."

But conservative critics say the package remains a massive taxpayer-financed government intrusion in the private markets, and likely will not address the economy's underlying weaknesses. Liberal opponents argue the bailout is tailored to Wall Street's needs and does not do enough to help small businesses or homeowners.

Mr. LaTourette, who voted against the bill Monday, lamented the spending added to the Senate version.

The pork designed to attract votes "just jumps out at you," he said. "And rum? I like the Virgin Islands, but why are we handing over $192 million for a rum subsidy in a bill that is supposed to rescue the American financial markets?"

Puerto Rican rum distillers, wooden-arrow makers and wool researchers were some of the big winners in the 451-page Senate bill, upping the ante in the high-stakes standoff with rank-and-file members, especially conservative Republicans and Democrats concerned about re-election.

The Congressional Budget Office estimates the tax breaks, including repealing a 39-cent excise tax on "wooden practice arrows used by children," and other changes will add $107 billion to the federal deficit over the next decade.

"It gives you insight into the sausage-making process, except the result isn't delicious — it's more like a razor-blade sandwich," said Andrew Moylan, government affairs manager for the National Taxpayers Union.

House Speaker Nancy Pelosi, California Democrat, and Mr. Hoyer, Maryland Democrat, both said they were determined to avoid a repeat of the embarrassment Monday.

Mr. Hoyer said he expected almost all of the 140 Democrats who supported the original deal to vote in favor again, despite some unhappiness from fiscally conservative Democratic Blue Dogs over tax breaks and other "sweeteners" added by the Senate. The real question, Mr. Hoyer said, will be whether enough Republicans can be persuaded to switch from "no" to "yes."

Mr. LaTourette and other bill skeptics in the House praised some of the Senate changes, notably an easing of strict accounting rules for troubled banks and an increase in the federal insurance for bank deposits from $100,000 to $250,000.

But he still questioned some of the Senate provisions, referred to as "tax extenders" because they are renewed only periodically, that benefit Hollywood filmmakers, racetrack owners and fisherman who receive legal settlements relating to the 1989 Exxon Valdez oil spill. They don't fit the technical definition of earmarks, Mr. Moylan said, but "have a lot of the same characteristics."

The wooden-arrow tax break covers "any shaft consisting of all natural wood with no laminations or artificial means to enhance the spine of the shaft used in the manufacture of an arrow that measures five-sixteenths of an inch or less and is unsuited for use with a bow with a peak draw weight of 30 pounds or more," according to the Senate bill, which would also save the Wool Trust Fund $148 million over the next decade to promote "the competitiveness of American wool."

At the White House, President Bush hosted business leaders from the National Association of Manufacturers and the U.S. Chamber of Commerce, who have strongly recommended quick passage of the bailout measure. Mr. Bush, who has been making calls all week to lawmakers in support of the bill, said the economic crisis is starting to be felt far beyond the financial world.

"This thing has gone way beyond New York and Wall Street. This is an issue that's affecting hard-working people," Mr. Bush said. "They're worried about their savings, they're worried about their jobs, they're worried about their houses, they're worried about their small businesses."

The U.S. Chamber of Commerce has spent thousands of dollars on advertising to convince the public that the rescue effort is necessary to stabilize the economy.

"We lost [Monday], no doubt about it; I have no intention of losing again," said R. Bruce Josten, the chamber's executive vice president for government affairs. "We're pushing, we're pressing and we're playing hard."

The core of the Wall Street rescue package, proposed by Mr. Paulson just two weeks ago, remains intact: The Treasury Department would get up to $700 billion to buy up now-worthless mortgages and mortgage-related securities that are clogging the books of the nation's banks and financial firms. Until those assets are addressed, Mr. Paulson argued, banks will not lend, consumers and businesses will be unable to borrow, and the aftershocks will be felt in pensions, savings plans, paychecks and payrolls across the country.

Lawmakers say they have improved the original three-page Paulson blueprint, adding several layers of oversight, some relief for homeowners struggling to meet mortgage payments, strict limits on executive pay for those who participate in the plan, and an ownership stake for the federal government in the companies being helped. When the U.S. housing market recovers and the mortgages gain in value, the government stands to recoup at least some of the money spent.