Four days after rejecting a similar package, the House cleared legislation today, 263-171, to provide a $700 billion rescue to at-risk financial institutions to shore up an economy teetering near recession. The measure went to President Bush, who promptly signed it. A number of lawmakers switched their votes over concerns another defeat could bring credit markets to a standstill, making student, auto and business loans unavailable and sending states into budget crises. Ninety-one Republicans voted for the bill, 26 more than Monday, while 172 Democrats supported it, a gain of 32. Some might have been swayed by a package of $150 billion in expiring tax breaks and an increase in FDIC insurance the Senate attached to the measure, providing comfort to GOP members who were under tremendous pressure from the business community to switch their votes. Rep. Zach Wamp, R-Tenn., said he opposed the earlier version, reflecting populist outrage against what many thought was a bailout to Wall Street. But Wamp said today the credit crunch has started to affect his district and urged a "red-white-and-blue vote" in support.
Some Congressional Black Caucus members said they would switch their vote after lobbying from Democratic presidential candidate Sen. Barack Obama. Only 18 of 39 CBC members voted "yes" Monday, primarily because they were upset that it did not do more for at-risk homeowners while containing tax breaks for business. "It meant a lot to me," said Rep. Elijah Cummings, D-Md. "It's not every day that the future president of the United States tells you that his priority matches your priority." Cummings and Rep. Donna Edwards, D-Md., said they decided to support the measure after getting assurances from Obama and House Speaker Pelosi that the House will address the crisis by pushing next year for a measure that would allow a bankruptcy judge to reduce the principal of a mortgage to current market value. Senate Republicans killed the provision this year at the behest of bankers who argued that it would raise costs for them. "We are in for a big fight," one banking lobbyist said of the provision. Pressure grew on California representatives to vote for the bill after Gov. Arnold Schwarzenegger wrote to Treasury Secretary Paulson that his state might need an emergency loan of up to $7 billion.
Still, some lawmakers remained opposed to the package even though it had safeguards such as establishing an oversight board to monitor the program; letting Treasury obtain equity in the firms to share in an upside if the firms later prosper; and placing limits on executive compensation for participating businesses. Rep. Jeb Hensarling, R-Texas, said the bill was anathema to his free-market principles. The legislation gives Treasury tremendous leeway over the purchase and management of the assets. Paulson will be under pressure to set up the program and make sure that it operates properly. Howard Glaser, a consultant who has worked for Fannie Mae and Freddie Mac, said Paulson will have to ensure close adherence to conflict of interest rules and make the program transparent, especially because Treasury will mostly rely on outside managers to operate the program.
This article appears in the October 4, 2008, edition of National Journal Daily PM Update.