When Treasury Secretary Henry Paulson offered Congress his $700 billion prescription for buying up troubled securities nearly two weeks ago, it was a three-page plan.
Now the proposal, which the Senate approved Wednesday night, runs 450 pages and includes "sweeteners" such as a temporary increase in federal deposit insurance and as much as $150 billion in tax breaks.
As the time ticks down to Friday's crucial House vote, President Bush and congressional leaders are now trying to get the bill over the goal line. They are leaning on lawmakers in the House to ensure that the bill gets passed.
The House narrowly defeated a similar bill on Monday, sending the Dow Jones industrial average into a record 778-point swoon. That, House Republican Leader John Boehner told Fox News, "really had a chilling effect on a lot of our members and a lot of their constituents."
House Speaker Nancy Pelosi vowed not to have a repeat of that debacle. She said she would not bring the measure to the floor without being sure that it would pass. The chief Republican vote counter, Roy Blunt of Missouri, said, "I think we will be able to go to the floor and be successful sometime tomorrow."
Investors, for their part, are already looking past passage of the plan. They have started focusing on what the economy will look like in the aftermath of this crisis. The Dow fell nearly 350 points, or 3.2 percent, on Thursday.
Investors were worried about two gloomy reports that suggest the economy is headed for recession. The Labor Department reported that jobless claims reached a seven-year high. The Commerce Department said factory orders fell 4 percent, a full percentage point more than economists had forecast.
Adding insult to injury, the Mortgage Bankers Association said that U.S. foreclosures in the second quarter rose to a record 2.75 percent of all mortgages issued.
Rep. Zach Wamp (R-TN) voted against the bill on Monday. He said in stark terms that he had changed his mind and would support it Friday.
"If some of us don't change our vote, tomorrow's going to be a real ugly day in America, and I don't want to be part of that," he told Fox News.
Rep. James Clyburn (D-SC) was asked at a news briefing if any Democratic budget hard-liners — who want to make sure any tax breaks are offset by less spending — will oppose the bailout because the Senate added tax breaks without paying for them.
"I haven't gotten any hard noes on the pay-go issue, but I've gotten a lot of concern on the pay-go issue," he said.
President Bush, for his part, focused on the problems in the credit markets when he spoke to reporters during a Thursday meeting with business executives at the White House. He said the crisis had "gone way beyond New York and Wall Street" and was now paralyzing the nation's business.
"This is an issue that is affecting hardworking people," the president said. "They are worried about their savings; they're worried about their jobs; they're worried about their houses; they're worried about their small businesses."
Indeed, the credit markets have been nonplused by all this activity on Capitol Hill. Banks that have cash aren't lending it. The cost of borrowing dollars in London for three months rose for the fourth day running and shows no signs of falling. LIBOR is considered a good barometer of how much banks trust — or don't trust — each other. And right now banks have determined they aren't willing to risk lending out their cash because they might not get it back.
And their wariness is not misplaced. European and U.S. governments have had to rescue five banks in the past week alone.
Because of the tight lending conditions, banks and institutional firms are going to the Federal Reserve to get cash. The central bank released a report Thursday showing that commercial banks averaged $44.5 billion in daily borrowing over the past week — compared with a little more than $39 billion the week before. Investment firms drew almost $148 billion for the week ending Wednesday, compared with just $88 billion the previous week. Commercial banks often go to the Fed to get loan privileges so they can cover their reserve requirements. Back in March, as it scrambled to avoid a market meltdown, the Fed gave investment houses permission to do that, too. This is the broadest use of the central bank's lending power since the Great Depression.
Finding The Votes
The president spent part of his day personally calling lawmakers to drum up support for the bill. White House spokesman Tony Fratto said the president had a call list of about three dozen members, most of whom were in the House. Fratto said the White House was "fairly optimistic" the House will pass the bill.
He said House members who told the president they were changing their votes to support the bill said that they were largely motivated by two things: the stock market declines after their Monday vote defeating the bailout program and the revisions the Senate added this week.
Boehner said as much on Fox News. "The big drop really had a chilling effect on a lot of our members and a lot of their constituents," he said. With the Senate's changes, he said, the legislation "has a much better chance" of passing this time.
House Finance Services Committee Chairman Barney Frank (D-MA) said he thinks there are enough votes to pass the measure.
"I think a number of members who voted no are going to be voting yes," he told CNBC on Thursday morning. "The economic consequences of the failure on Monday are going to have an impact."
The bill looks very different from what the administration originally proposed. The government would now dole out the $700 billion for buying bad loans in three parts. The measure gives taxpayers some assurance that they will be paid back if and when the financial institutions they rescue get back on their feet. The program now has more oversight, and executives who have the Treasury buy up their bad mortgages will have a ceiling on their compensation.
The Senate's sweeteners included temporarily raising the limit on federal deposit insurance to $250,000 from $100,000 per account and about $150 billion in tax breaks, including an extension of the alternative minimum tax and property tax relief.
Focus Turns To Implementation
Investors are also focusing on how the U.S. Treasury is actually going to administer the program. Analysts said that until the Treasury explains how it will buy and sell this toxic debt, the nervousness will continue.
Indeed, the Treasury will have to walk a fine line. On the one hand, there is concern that the Treasury will buy the debt at such bargain-basement prices that it will hurt the banks, rather than help them. And if the Treasury just gives the banks the price the market would give them right now, it raises the question as to why the government needs to be involved in the first place.