WASHINGTON (Reuters) - The U.S. House of Representatives set aside doubts that prevailed a few days ago and passed a landmark $700 billion Wall Street bailout bill on Friday that President George W. Bush promptly signed into law.
Eyeing both the November 4 elections and stock market indexes, lawmakers voted 263-171 to approve the government’s biggest market intervention in decades, despite deep reservations about its mechanics, enormous cost and ideological significance.
In a stunning vote on Monday, the House had rejected the bailout proposal, sending stock markets plummeting.
Amid the ensuing financial market volatility and voters’ fears, the Senate responded on Wednesday and passed the bill, attaching $150 billion in popular tax break extensions and a boost in bank and credit union deposit insurance to rally more House support.
The strategy paid off and four days after rejecting the bill, the House easily approved the revised measure, with 32 Republicans switching the “no” votes they cast on Monday to “yes” on Friday and 26 more Democrats voting yes.
House Minority Leader Roy Blunt, a Missouri Republican, credited the “active participation” of Republican presidential candidate John McCain and Democratic candidate Barack Obama in convincing some House members to support the bill.
Conservative Republican House members, aware of a wave of opposition to the bill as they prepared for November 4 elections, attacked it as a step toward “socialism,” while liberal Democrats blasted it as a bailout for Wall Street “fat cats.”
But a majority decided to forge ahead with the plan, first proposed on September 20 by the Bush administration and modified over two weeks of frantic negotiations on Capitol Hill.
Massachusetts Democratic Rep. Barney Frank, chairman of the House Financial Services Committee, said the bailout package represented emergency first-aid for Wall Street.
“We will be back next year to do some serious surgery on the financial structure,” Frank said. “Starting in January, we have to rewrite housing finance in America.”
He also told reporters, ”We have to provide new constraints on risk“ in the overall financial services industry.”
For Frank, an important negotiator for the bill, the Senate’s add-ons were not as important to House passage as evidence this week of a seriously worsening U.S. economic picture.
“States like Massachusetts and California couldn’t roll over notes” to help finance their day-to-day operations and credit for private borrowers also was freezing up, he noted.
Maryland Democratic Rep. Elijah Cummings told reporters he changed his “no” vote on Monday to “yes” on Friday after Obama, of Illinois, called him to urge him to change his position.
Cummings, from economically depressed Baltimore, said he got assurances from Obama that if elected president he would put a high priority on the issue of bankruptcy courts being able to restructure mortgage loans. Cummings said the bailout may not make things better, but “I am convinced it will stop things from getting worse.”
The bailout bill will empower the Treasury Department to purchase up to $700 billion of broken mortgage-backed securities that are choking world capital markets. Treasury would dump the securities into a vast federal portfolio in hopes that will unclog the markets.
The bill leaves unanswered precisely how Treasury would price and purchase the assets and manage them -- questions that economists have said will decide whether the plan works and whether taxpayers will one day get their money back.
By attaching the renewal of expiring tax credits to the bill, congressional leaders were able to coax support from some wavering lawmakers, especially Republicans.
The tax provisions include renewing a middle-class tax break, an expanded child tax credit and renewed deductions for state and local sales taxes, important in states like Texas. The bill continues the deduction for local property taxes.
Fiscal conservatives complained the tax portion of the bill was not paid for with spending cuts or other tax increases that the Senate refused to go along with.
The measure will potentially add about $850 billion to the U.S. debt at a time when annual budget deficits are already hitting record levels.
In five years, if the bailout has cost taxpayers money, the president will have to submit legislation setting a levy on Wall Street to cover those costs.
Additional reporting by Kim Dixon, Karey Wutkowski, Donna Smith; Editing by David Storey and Peter Cooney