House Reverses Field, Votes 'Yes' on Bailout

Representatives are swayed by added tax breaks and deposit insurance, a flood of angry business calls, and the threat of another market meltdown

by Theo Francis

After two weeks of dramatic reversals and market turmoil, the Bush Administration's proposal to invest as much as $700 billion in the troubled market for mortgages and related securities passed into law in a matter of hours on Friday, Oct. 3.

The House of Representatives voted 263-171 to adopt the measure, without amendment, and President George W. Bush signed it about 90 minutes later.

The bill received 91 votes from Republicans and 172 from Democrats, up from 65 Republicans and 140 Democrats in a failed vote Monday. Faced with substantial public disapproval—albeit less than it seemed earlier in the week (BusinessWeek.com, 10/2/08)—Democratic leaders had insisted throughout the process that they needed a bipartisan bill. Otherwise, they feared, they would be seen as joining the Administration in a Wall Street bailout.

Lawmakers supporting the bill cited a rapidly worsening credit market that had left constituents unable to get financing to buy cars or bank loans to expand small businesses. Some cited public opinion shifting since Monday, when the House's rejection of an earlier version of the bill, by a 228-205 vote, sent the Dow Jones industrial average spinning down more than 778 points (BusinessWeek.com, 9/29/08), or almost 7%. Several House members warned from the floor that the bill was no silver bullet, and that Congress and the Administration—both this one and the next—will still have plenty of work to do.

Treasury Secretary Henry Paulson Jr. promised both speed and care in executing the Troubled Asset Relief Program created by the bill. "We will move rapidly to implement the new authorities, but we will also move methodically," he said. The goal would be to use a variety of tools to reinvigorate the private capital markets.

Bush called the bill the product of a successful bipartisan effort, and said that, although many Americans "have concerns" about the bill, the measure is necessary to prevent a serious financial crisis from worsening. "We have acted boldly to help the crisis on Wall Street from becoming a crisis in communities across our country," he said. Bush also visited the Treasury Department, where he praised Paulson and agency employees for six weeks of grueling work "dealing with a serious financial crisis."

From the Presidential campaign trail, Barack Obama and John McCain lauded the bill's passage, but said more hard work remained before the economy would improve substantially.

"We must also do more than this rescue package does to help homeowners stay in their homes," Obama said in a statement. "Passing this rescue plan cannot be the end of our work to strengthen the economy—it must be the beginning."

McCain, in a statement, called the bill "a tourniquet, not a permanent solution" but said modifications to the bill would protect the taxpayer. "It is an outrage that it's even necessary," McCain said. "But we must stop the damage to our economy done by corrupt and incompetent practices on Wall Street and in Washington."

Jitters About the Add-Ons

Heading into the vote, business and some consumer lobbyists worked furiously (BusinessWeek.com, 10/2/08) to change votes in the House. There were some last-minute jitters (BusinessWeek.com, 10/3/08) about the outcome, in part thanks to the very provisions added to make it more palatable to Republicans.