U.S. Senate expected to approve bailout package

Steven Edwards and Sheldon Alberts , Canwest News Service

Published: Wednesday, October 01, 2008

WASHINGTON - Backers of a $700-billion financial bailout package were hopeful Wednesday an expected thumbs-up by the U.S. Senate would give the measure momentum for overall congressional approval.

The new version of the plan adds tax breaks and a higher limit for insured bank deposits in a bid to set the groundwork for a joint bill that would be sent to President George W. Bush by the end of the week. The House of Representatives rejected an earlier version of the plan on Monday.

"I am hopeful . . . we'll see a strong vote in support of this plan, and bipartisanship shown in the Senate today will spark the House of Representatives to do the same," said Democrat Harry Reid, the Senate majority leader, ahead of the vote scheduled for 7:30 p.m. ET.

'I am hopeful . . . we'll see a strong vote in support of this plan,' Senate majority leader Harry Reid said Wednesday before the vote.

Brendan Hoffman/Getty Images

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Bush described the Senate plan as "different" and "improved" as he addressed reporters after meeting with Gen. David McKiernan, NATO Forces commander in Afghanistan. But Bush did not take questions.

The House rejection of the bill rocked global markets, but U.S. officials say the bailout is vital to restoring confidence in the financial system, where clogged credit markets are already slowing the day-to-day running of the economy.

U.S. presidential hopefuls John McCain and Barack Obama, both senators, were returning from the campaign trail Wednesday to cast their votes after urging approval.

"If the financial rescue bill fails in Congress yet again, the present (credit) crisis will turn into a disaster," McCain said in a campaign event speech in Independence, Mo.

"In the case of this bill, I am confident there are enough people of goodwill in both parties to help see America through this crisis."

Obama warned from a campaign stop in Reno, Nev., that without action, "millions of jobs could be lost (and) a long and painful recession could follow."

But he also sought to ride the wave of anger over the bailout, saying "there will be a time to punish those who set this fire."

Despite the general political optimism about the new plan, market reaction was mixed, with the Dow Jones index and Toronto's stock exchange ending Wednesday slightly down. In Europe, key indices in Britain and France edged slightly upwards, while Germany's slipped. Earlier, Japan's Nikkei Index ended up one per cent, and Australia's main index closed up four per cent.

Analysts say that many of the House members who opposed the bill Monday were reacting to the flood of calls that poured into House and Senate offices last week from voters decrying the proposed bailout as a boondoggle favouring Wall Street fat cats - while doing little for Main Street.

Significantly, every House member faces voters Nov. 4, and of 41 incumbent members Congressional Quarterly considers to be most vulnerable to defeat, only nine supported the bill, which collapsed 228-205.

There was expected to be less resistance in the Senate because only a third of the members must this year face the electorate.

But there is also a sense on Capitol Hill that public sentiment has reluctantly swung in favour of federal action after Monday's stock market nosedive provoked a fear that severe economic hardship really was beckoning. "Calls to members offices have changed from being 90 per cent 'don't do this' - they're (now) 50-50," Republican House minority whip Roy Blunt said on NBC.

"In some offices, they're 90 per cent 'you have to do something.' This may be the best thing out there."

For the legislators themselves, Monday's stock market decline served as a wake-up call, with one senator saying: "We sort of have to get hit in the face with it."

The Senate vote was slated for after sundown in observance of Rosh Hashanah, which marks the Jewish New Year.

While Congress had also been closed Tuesday for the holiday, Reid and Senate Minority Leader Mitch McConnell announced the revised plan the same night.

The White House said Wednesday Bush, who has warned of "painful and lasting" consequences for the U.S. should Congress fail to agree to a rescue plan, would be lobbying senators to pass the revised version. The measure will require 60 votes to pass instead of a simple majority in the 100-member Senate - an arrangement Senate leaders agreed to so that it could be brought to a vote quickly.

Architects of the measure had needed to strike a delicate balance between introducing elements that attracted new support without alienating legislators who favoured the make-up of the original package.

The added tax provisions, as well as the increase to the insured bank deposit limit, was expected to make the revised measure more palatable to House Republicans, who outnumbered Democrats in their opposition to Monday's bill.

Bank and credit union deposits are currently insured in the U.S. to $100,000, but the bill proposes the limit be increased for a year to $250,000 - a move that small businesses will welcome because of their frequent need to carry higher balances than households.

Tax breaks in the Senate bill are directed at renewable energy industries, but it also includes tax incentives for other businesses, and provides a one-year fix to the Alternative Minimum Tax that aims to exempt millions of Americans from higher income taxes.

"Senators and Representatives can now know that a 'yes' vote on the financial rescue plan is now a vote to rescue America's working families from the financial crisis, with the right tax relief at just the right time," Max Baucus, chairman of the Senate Finance Committee, said in a statement.

The bill retains the central component of the original plan that gives Treasury Secretary Henry Paulson the power to buy up "toxic" mortgage-related assets that are at the heart of the credit market lethargy. Supporters have argued these assets could potentially reap a profit for the government when they are sold off.

The Senate bill also retains restrictions on "golden parachute" payoffs for the CEOs of troubled firms benefiting from the government bailout.

Among changes being considered in an eventual revised House plan is an extension of unemployment pay and a $1,000 tax credit for less affluent homeowners.