Senate Passes Bailout Proposal; House Vote Up Next

A revised version of the rescue bill passed a Senate vote late Wednesday evening, with 74 lawmakers approving the package in a roll call vote; 25 voted against. The new bailout package, however, isn’t all that new: it includes tax breaks for businesses and an increased limit on government-insured bank deposits, as new wrinkles that key lawmakers hope will drive enough support to pass the package. But the core provisions tied to a financial bailout, the provisions that led House members to revolt on Monday and reject the plan, remain in place. Federal Deposit Insurance Corporation chairman Sheila Blair said Tuesday that an increase in government bank insurance to $250,000 from $100,000 would restore public confidence and keep cash deposited in banks. The Senate’s version of the bill would provide more than $100 billion in business tax breaks for research, development and employment of renewable energy sources, as well. Both additions are items Senate lawmakers hope will be enough to entice members of the House to vote in favor of the bailout package; the House is expected to take up the freshly loaded-up bill in a Friday vote. One of HW’s sources on Capitol Hill said earlier on Wednesday that members of the Senate are hopeful their vote-first approach sends a signal to House members. “This is a broad package that lawmakers are hoping diffuses some criticism,” said the source, a lobbyist that asked not to be identified. “It even has buried provisions on health care reform surrounding mental health treatment. The question is whether it ends up being deemed so unfocused that it doesn’t address the core issue at hand.” The move to include Senate tax extenders in the proposal was a direct effort to lure House Republicans, seen as critical to the passage of the bailout proposal; House Republicans voted against the original proposal by a wide 2 to 1 margin on Monday. CQ Politics reported Wednesday that Senate lawmakers are hopeful the inclusion will entice enough to vote in favor of the package this time around — despite the fact that the core provisions of the proposal are exactly the same as they were four days ago. But sources said the move could backfire and cost the support of House Democrats that had originally supported the bill; House Democrats have been pushing a separate tax plan requiring full offsets and may balk at a bailout package they were already uncomfortable with in the face of the tax additions. The bill, if passed by House members and signed into law by President Bush, would essentially complete a nationalization of the U.S. mortgage market — with the government’s seizure of twin mortgage finance giants Fannie Mae (FNM) and Freddie Mac (FRE) a few weeks ago, the only market left that the government does not already own is the now-dead market for private-party subprime and Alt-A mortgages and the securities they back. Disclosure: The author held no relevant positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.