After Passage In Senate, House To Vote On Bailout

The House votes again Friday on the bailout. It failed to pass the measure on Monday, but the Senate's passage of the bill may persuade some lawmakers to switch their votes. The $810 billion question: Will it pass?

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ROBERT SIEGEL, Host:

From NPR News, this is All Things Considered. I'm Robert Siegel.

MELISSA BLOCK, Host:

And I'm Melissa Block. At this hour, the two vice presidential candidates, Sarah Palin and Joe Biden, have just begun their debate at Washington University in St. Louis. Gwen Ifill of PBS is the moderator. We'll bring you updates on the debate throughout this hour of All Things Considered.

But first, to Capitol Hill, where lawmakers spent the day counting the yeses and the nos as the House prepares to vote tomorrow on an expanded version of the financial rescue plan. Some House members who refused to back the $700 billion package on Monday have said that they will support the version that passed the Senate. NPR's Debbie Elliott has this report.

DEBBIE ELLIOTT: It's been a day of arm twisting and soul searching on Capitol Hill as congressional leaders and President Bush try to convince a dozen or so House members to get behind the bailout package.

JIM MCCRERY: I think we're close.

ELLIOTT: Louisiana Congressman Jim McCrery is the ranking Republican on the House Ways and Means Committee. He says lawmakers are in a very difficult position.

MCCRERY: We have been called upon to make a momentous decision regarding the economy of the United States in a very short period of time. And we are not accustomed to that. We've had two weeks, basically, to come up with a response to something that we are told is on the verge of calamity.

ELLIOTT: McCrery voted for the bill Monday and has been urging his colleagues to now do the same. Two-thirds of House Republicans rejected the plan Monday. But today, several of them have reconsidered and now plan to vote yes. Arizona Republican John Shadegg is among them. He appeared on CNN today.

JOHN SHADEGG: All along, Secretary Paulson having, I think, thrown gasoline on this fire by lobbying the bill with fear has created a climate in America and quite frankly, a climate around the world where it is vitally important that we do something. And I don't like the structure of the bill. I would write it very differently. But I think for the sake of the overall economy and so that Americans don't lose their jobs, it's important that we act. And I think this package is the best we're going to get.

ELLIOTT: Democratic House Financial Services Committee Chairman Barney Frank, a key negotiator on the rescue plan, says he's not sure there are enough votes yet, but describes a new political climate this time around.

BARNEY FRANK: Politically, the good vote on Monday was no. That's clear now. It doesn't mean because people have heard from a number of people in the business community, and people have also seen harm that they may have been skeptical of.

ELLIOTT: Some lawmakers say they've been swayed by new provisions in the Senate bill. It still allows the government to buy up to $700 billion in bad debt. It also sets a higher limit for federally insured bank accounts. Frank says such sweeteners also provide political cover.

FRANK: I think the importance of the changes is that it's both the substance of the changes for some people, and for others, it's hard to explain why you just change your vote on the same bill. The fact that it's a different bill, I think, we'll make it easier for some people to explain the change in vote.

ELLIOTT: As an added incentive, the Senate attached the bailout to about $150 billion worth of popular tax breaks for renewable energy, for homeowners who don't itemize ,and for businesses. That didn't work for Texas Republican Ted Poe, a steadfast opponent.

TED POE: The bill to bailout the elite financial industry in New York that caused this mess failed this House, but our Senate colleagues are sending us a new bill four times longer than the 100 page bill rejected by us. The bill to stabilize the financial industry is now packed with squeaky pork. One would ask what does pork have to do with the financial industry? Well, nothing, of course.

ELLIOTT: Democratic House Speaker Nancy Pelosi says, despite reservations on both sides of the aisle, the bill needs bipartisan support.

NANCY PELOSI: Congress must act, we must intervene. We have to send a message of confidence to the market.

ELLIOTT: A vote is expected tomorrow, but House Majority Leader Steny Hoyer says he won't bring the financial rescue package to the floor unless he's confident there are enough votes to pass it. Debbie Elliott, NPR News, the Capitol.

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As Bailout Bill Grows, So Do Its Chances

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.

Credit Problems

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.