Senate Tries Its Hand At Passing Bailout Plan

Calm settled on financial markets and Capitol Hill Tuesday after the House voted Monday to reject the Wall Street bailout plan. The Senate will vote Wednesday on a modified bill. Supporters hope a few changes will also lead to passage in the House.

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It's Morning Edition from NPR News. Good morning, I'm Steve Inskeep.

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And I'm Renee Montagne. Another day, another $700 billion bailout plan. The Senate votes this evening on legislation to rescue the nation's financial institutions. This bill will be somewhat different from the one the House rejected. It will include some popular tax breaks which could make it more appealing to Republicans in the House, though not so much to Democrats. NPR's Brian Naylor reports.

BRIAN NAYLOR: The Jewish new year has provided lawmakers of all persuasions an opportunity to take a deep, cleansing breath after Monday's tumult which saw the financial bailout plan stunningly collapse amidst angry accusations and partisan finger pointing. Unlike the House, the Senate was in session yesterday, and senators spoke in measured tones about the need for calm and second thoughts. Senate Banking Committee Chairman Christopher Dodd, one of the lead negotiators of the bailout, said things were moving in the right direction.

Senator CHRISTOPHER DODD (Democrat, Connecticut; Chairman, Senate Banking Committee): The last thing we need is to have this not work again. We better decide whether or not we're serious about this. This is a difficult vote - I wouldn't suggest otherwise - but an important one. And I know that those who cast votes yesterday are having some second thoughts about the condition they placed us in and are trying to find a way in which to get back on track again.

NAYLOR: Late yesterday, Senate leaders announced a plan they think will get the bailout back on track. It calls for a vote this evening on a modified version of the original plan. The basic concept behind the measure remains the same as the bill rejected Monday, providing $700 billion to Wall Street to buy troubled securities. But leaders tweaked the bill in order to gain more support. One likely addition, a provision to increase the size of accounts that can be insured by the Federal Deposit Insurance Corporation from 100,000 to 250,000 dollars. That move has the support of both John McCain and Barack Obama, who along with Joe Biden say they'll return to Washington for the vote. Lawmakers suggested other changes yesterday to win more votes in the House. Ohio Democrat Marcy Kaptur voted against the bailout Monday. She says any plan that gets her support will not reward Wall Street's mistakes.

Representative MARCY KAPTUR (Democrat, Ohio): I think that the proposals we are offering are much more market-oriented. And they will bring the kind of discipline - I like to call it good mid-Western values of prudence and responsibility - back to the markets. Those that were not responsible will have to pay a price. But also those who have been prudent will not have to pay for their mistakes.

NAYLOR: Meanwhile, unlike their counterparts in the House who were hostile to the bailout, Republicans in the Senate generally backed the proposal that died Monday and say it's time to fix the problem and stop pointing fingers. Republican Lamar Alexander of Tennessee likened the situation in the financial markets to a pileup on the freeway.

Senator LAMAR ALEXANDER (Republican, Tennessee): Well that's kind of what we're doing today in the United States Congress, we are just standing around looking at the wreck when somebody ought to be moving the wreck off the highway so that economic traffic can proceed.

NAYLOR: Republican Senator Christopher Bond of Missouri said the residents of his state are worried about their children's future and their financial security.

Senator CHRISTOPHER BOND (Republican, Missouri): There's a lot anger, frustration and disgust, and that's why we've gotten to this point. I've heard those feelings loud and clear. I share those feelings. As I said before, frankly, I don't want to be here, not as a senator, not as a Missourian or American, or a family member. But I believe this is something that we have to do. We have no choice but to act.

NAYLOR: The Senate will act this evening. The bill it takes up will need 60 votes to pass, but that scene is likely as it has the support of the Democratic and Republican leaders. The real problem remains in the House. The tax credits the Senate plans to attach to the measure are not offset with spending cuts or other tax increases, so they'll add to the deficit. Because of that, conservative Blue Dog Democrats have opposed the bill in the past. Whether they'll swallow their objections now with the bailout on the line remains the key question. Brian Naylor, NPR News.

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Lawmakers Work To Save Bailout Plan; Dow Rallies

Senate Minority Whip U.S. Sen. Jon Kyl (left) talks with Chris Dodd i i

hide captionSenate Minority Whip U.S. Sen. Jon Kyl (left) talks with Senate banking committee Chairman Chris Dodd at the Capitol on Tuesday.

Senate Minority Whip U.S. Sen. Jon Kyl (left) talks with Chris Dodd

Senate Minority Whip U.S. Sen. Jon Kyl (left) talks with Senate banking committee Chairman Chris Dodd at the Capitol on Tuesday.

In Depth

Your questions answered on:

After watching more than a trillion dollars in market value evaporate on Monday, Wall Street roared back on Tuesday.

The day seemed choreographed to inspire market confidence. President Bush, for the second day in a row, came out to assure anyone within earshot that a rescue plan would be passed in short order.

A short time later, the minority and majority leaders of the Senate stood before the microphones to say that the time for partisan bickering had ended.

Wall Street investors saw all this as encouraging. The markets rocketed right out of the blocks — up nearly 300 points in early trading. The Dow Jones industrial index ended the day up 485.21 points higher, at 10,850.66.

The Senate is scheduled to vote Wednesday night on a revised bailout measure that reportedly includes provisions such as an increase in the limit on federally insured bank deposits to $250,000 from $100,000, and changes to the alternative minimum tax.

All Eyes On Congress

What lawmakers manage to get done over the next 24 hours will be key. They will have to strike a delicate balance between changing the $700 billion bill just enough to pick up more Republican votes and not losing Democratic support in the process.

Ninety-five Democrats and 133 Republicans voted against the bill on Monday. Lawmakers need about a dozen more votes to get the bill — in whatever form it eventually takes — passed in the House.

House members reconvene on Thursday. Congressional leaders have said they hope to get something passed by the end of the week.

"If our nation continues on this course, the economic damage will be painful and lasting," President Bush said before the markets opened on Tuesday. He said Monday's market declines were proof of just how much was really at stake.

"Our economy is dependent on decisive action from the government," the president said. "The sooner we take action, the sooner we can get back on the path of economic growth."

Voters have made clear that they don't like the idea of using $700 billion of taxpayer money to bail out rich executives on Wall Street. The White House has been trying to convince both lawmakers and the American people that this isn't a bailout, it is a rescue.

President Bush said the current rescue package's $700 billion price tag is just a fraction of what could be lost if the plan doesn't go ahead. "To put that in perspective," the president said, "the drop in the stock market yesterday represented more than a trillion dollars in losses."

Compromises That Might Win More Support For Bailout

The horse trading on Capitol Hill has already started.

Conservative Republican members of the House want some sort of mandatory insurance program to be included in the bill. They have also asked for the Securities and Exchange Commission to suspend mark-to-market accounting rules and instead require bank regulators to assess the real value of troubled assets.

Mark-to-market accounting essentially allows Wall Street firms to value (or "mark") the assets in their portfolio based on current market prices. The problem, critics say, is that under that accounting rule, sliding home prices affect not just the value of mortgages that are defaulting but of all mortgages — and therefore, of all mortgage-backed securities.

That, in turn, affects how much capital firms are required to have on hand to cover their debt exposure. And to raise that capital, firms end up having to sell other assets — which drives the price of those assets down, too. In other words, they say, mark-to-market accounting can lead to a downward spiral.

Democrats have been opposed to both a change in mark-to-market accounting rules and to the insurance provision.

House Republicans are also lobbying the White House to get the Federal Deposit Insurance Corp. to step up and issue lenders certificates that they could use as capital. They would essentially be loans that the banks would have to pay back with interest. In return, the FDIC would get more power to say how the banks ought to be run. Democrats aren't enthusiastic about that proposal, either.

Fence-sitting Democrats have asked that bankruptcy judges be allowed to step into the mire and alter home mortgages for homeowners in bankruptcy. They'd like the judges to be able to tinker with the terms of the loan and maybe even write down the principal balance. Republicans have said such a provision would be a poison pill that would kill their support for the legislation.

Michael Andel, chief of staff for Democratic Rep. David Scott of Georgia, said he believed a deal was possible by late this week if congressional leaders agree to a few modest additions to the bailout bill. Andel said a direct home-loan program in the package would get many new members on board. "A little more help for average folks would go a long way," he said.

Scott was circulating a proposal on Tuesday to use 1 percent of the bailout funds to directly buy mortgages from troubled homeowners.

With additional reporting by Dan Costello.

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