How Different Is Senate Version Of Bailout Bill? The Senate is taking up the $700 billion plan to rescue Wall Street. Benton Ives, economics and finance reporter for the Congressional Quarterly, says the legislation is largely the same as the one the House rejected Monday, but with added tax breaks and an increase on the deposit insurance cap.
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How Different Is Senate Version Of Bailout Bill?

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How Different Is Senate Version Of Bailout Bill?

How Different Is Senate Version Of Bailout Bill?

How Different Is Senate Version Of Bailout Bill?

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

The Senate is taking up the $700 billion plan to rescue Wall Street. Benton Ives, economics and finance reporter for the Congressional Quarterly, says the legislation is largely the same as the one the House rejected Monday, but with added tax breaks and an increase on the deposit insurance cap.


But this is the bill that the Senate has before it, with the grudging support of both parties, both leaders and both presidential candidates. One question, how different is the Senate bill from the bill that failed in the House on Monday? And for the answer, we turn to Benton Ives, who is covering all this for Congressional Quarterly. Welcome to the program.

Mr. BENTON IVES (Economics and Finance Reporter, Congressional Quarterly): Thanks for having me.

SIEGEL: And, Benton Ives, what's different?

Mr. IVES: Well, in a lot of ways, the Senate bill is pretty much exactly the same as the bill that failed in the House. The rescue package itself is essentially the same. As of right now, at least, it includes only an increase in the deposit insurance level for the Federal Deposit Insurance Corporation or the FDIC. Otherwise, the rescue element is pretty much the same sort of 700 billion program designed to purchase these distressed assets that have been blowing holes in bank balance sheets.

SIEGEL: You mean, the ceiling on an uninsured deposit would go up under this from a hundred thousand to a quarter million dollars?

Mr. IVES: That's exactly right. There's a slight change in the way that the FDIC can get money from the Treasury, but since the FDIC is considered to be a full faith and credit of the U.S. government, insurance backing those lines of credits probably aren't that relevant.

SIEGEL: Then there's a tax dimension to this measure in the Senate, yes?

Mr. IVES: That's right. The Senate has added in a very interesting wrinkle, probably in an effort to win more support from reluctant House lawmakers. The Senate has tacked on a package of tax breaks that were expiring. These are tax breaks for renewable energy, for research and development, as well as a fix for the alternative minimum tax. Most of this tax package is widely supported by both parties, and the hope, probably by the Senate, is that that will spark more House interest in moving the entire package.

SIEGEL: Yeah. The theory here is that this should pass the Senate. That doesn't seem to be very much in doubt. The question is then, if it goes back to the House, would there be 12 more votes to approve it? I want you to put us in the shoes of a member of the House who either didn't vote for it on Monday or just barely was won over to voting for it. Is this that much more attractive than what they saw earlier in the week?

Mr. IVES: That is a very difficult question to answer because you've got a whole bunch of different constituencies in the House. For example, you have so called Blue Dog Democrats, these are more conservative, fiscally conservative Democrats, and they are not very happy with the Senate's version of the tax bill because it doesn't include pay force for the tax cuts, and whether or not the inclusion of these tax breaks will turn more of them off is unknown. On the other hand, you've got some Republican members who may have voted against the rescue bill who would be enticed by the inclusion of these tax breaks. But underlying all of that, you also have the fact that, while the tax bill is certainly a very important piece of legislation, the rescue legislation dwarfs it, both in potential cost and size and in policy ramifications. So, you know, including a so-called sweetener to change a member's mind may or may not work. The overriding issue of whether or not Congress should even be intervening in the markets in this way may make all of that irrelevant.

SIEGEL: There have been so many statements by senators today, to the effect or literally saying, this is not for Wall Street, this is for Main Street, this is not for the financial sector, this is for everyone who borrows to do commerce, to meet payrolls, to buy things, to build highways. It seems that people on Capitol Hill, they must assume that this bill was very badly sold earlier this week to the House.

Mr. IVES: I think that that's been one of the common complaints from certainly House Republicans, that the Treasury Department, that the White House, did a very poor job of pitching this bill both to the public and to members. And I think there's a great deal of confusion about it. I mean, the complex chain reaction that would stem from a major credit crisis, you know, how that would spill over to so called Main Street America is not a very linear, easy-to-describe process. Nonetheless, you know, the nation's top economic officials are worried about some very bad outcomes, and I think, you know, you're seeing a concerted effort by both the business community and a redoubled effort from the Treasury Department and bill supporters to convince some of those members that this is the right thing to do.

SIEGEL: That's Benton Ives, who is economics and financial reporter for Congressional Quarterly. Benton Ives, thanks a lot for talking with us.

Mr. IVES: Thank you very much.

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Senate OKs Bailout Package, House To Vote Friday

Senate Banking Committee Chairman Chris Dodd (D-CT) speaks to the press Oct. 1 after the Senate voted in favor of the $700 billion financial rescue package. Nicholas Kamm/AFP/Getty Images hide caption

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Nicholas Kamm/AFP/Getty Images

A day before the vote, lawmakers huddled in the office of Senate Minority Leader Mitch McConnell (center). Alex Wong/Getty Images hide caption

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Alex Wong/Getty Images

A day before the vote, lawmakers huddled in the office of Senate Minority Leader Mitch McConnell (center).

Alex Wong/Getty Images

The Senate approved a $700 billion rescue package for the financial industry Wednesday night, giving new life to the bailout by loading it with tax breaks and other provisions tailored to help ease its passage in the House, where an earlier version fell a dozen votes short Monday.

The 74-25 Senate vote — well over the 60 votes needed for passage — comes as the House gears up to consider the massive plan on Friday.

President Bush issued a statement lauding the action in the Senate. "With the improvements the Senate has made, I believe members of both parties in the House can support this legislation," Bush said. "The American people expect — and our economy demands — that the House pass this good bill this week and send it to my desk."

Even though it looks more likely that a rescue package for the financial industry will be sent to the president this week, investors are still wary. They are concerned that the $700 billion plan won't be enough to stave off more bank failures or end up doing enough to ease the current credit squeeze. The Dow Jones industrial index ended down almost 20 points, at 10,831.07.

Investors are now looking beyond the bailout package to how this crisis is likely to affect the economy. They are bracing for nothing less than a recession.

Since the House rejected the rescue plan Monday, sending financial markets plummeting, the tenor of the conversation has clearly changed.

"Last week it was overwhelmingly, 'Vote no'; the tone has changed," Sen. Charles Schumer (D-NY) told CNBC on Wednesday morning. "You never can predict on something like this until you have the votes, but on the Senate side there seems like there is broad, bipartisan support. If I had to guess I would say that it would pass both bodies."

Lawmakers and the White House are focusing on the economy and what small-business people and ordinary Americans have at stake.

Senate Majority Leader Harry Reid (D-NV) provided a roster of examples for reporters in which he said the financial crisis was starting to bite ordinary Americans. He said one auto dealer in his district — who has been in business for more than 50 years — called him to say he couldn't get credit. Reid said people waiting to take out mortgages were losing escrow money. The narratives were clearly aimed at getting any fence-sitters in the Senate or the House to back the bailout proposal.

The Senate measure is very different from the one Treasury Secretary Henry Paulson presented to Congress last week.

Lawmakers in the House added provisions that would dole out the $700 billion the government wants to buy bad loans in three tranches. It also gives taxpayers some assurance that they would be paid back if and when the financial institutions they rescue get back on their feet later. The bill also includes beefed-up oversight of the program and a cap on compensation for executives who have the Treasury buy up their bad mortgages.

Boosting Deposit Insurance

The Senate, for its part, added "sweeteners" that would increase bank deposit insurance and extend tax breaks. Republicans have agitated for both provisions. As it stands now, the bill would temporarily raise the limit on federal deposit insurance to $250,000 from $100,000 per account and provide more than $100 billion in tax breaks, including extending alternative minimum tax relief for middle-class taxpayers and property tax relief.

The FDIC insurance measure is meant to help restore confidence in the nation's lenders. Federal Deposit Insurance Corp. Chairman Sheila Bair sought the increase Tuesday. The Senate's tax breaks would include some $78 billion in renewable energy incentives and extensions of expiring tax breaks. Those breaks would cost about $112 billion over the next five years.

Overseas, similar guarantees have been already been promised. Prime Minister Gordon Brown said Tuesday that the British government plans to raise the guarantee for bank savings to 50,000 pounds (about $90,000) from 35,000 pounds in a new banking law. Earlier that day, the Irish government guaranteed unlimited bank deposits in Irish banks for a period of two years.

Both Republican presidential nominee John McCain and Democratic nominee Barack Obama had expressed support for the Senate proposal. Both senators returned to Washington to vote on the measure Wednesday evening. Earlier, McCain told NPR's Steve Inskeep that he was "guardedly optimistic" the bill would pass.

"I think we've made improvements to the bill in a variety of ways, including the amount of money we pledge upfront, to better oversight, to allowing more options for insurance," McCain said. "I think the original version has been improved. But now, we can't let the perfect be the enemy of the good."

Credit Trouble

Bush had been contacting senators to lean on them to pass the bill. White House spokesman Tony Fratto said in an e-mail that the president is increasingly concerned about a seizing up in the credit markets. "This morning we're seeing increased evidence of the credit squeeze on small businesses and municipalities all across the country," Fratto said. "So it's critically important that we approve legislation this week and limit further damage to our economy."

The London Interbank Offered Rate, or LIBOR, the rate at which banks lend money to each other, climbed to an all-time high of 5.07 percent overnight. That's a pretty good barometer of how much banks trust — or don't trust — each other. Banks that have cash are hanging on to it and clearly are loath to lend to others for fear they might not get their money back. Their wariness is not misplaced. European and U.S. governments have had to rescue five banks in the past week alone.

The big problem for banks is that they "don't know who will be in business next week," said Michele Gambera, chief economist at Ibbotson Associates.

A Change In Accounting

Although senators approved the bailout plan, lawmakers aren't out of the woods yet. Conservative Republican members of the House are still calling for some sort of mandatory insurance program that financial firms would be required to buy, but it is unclear how the program would work.

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.

House Democrats have been opposed to both a change in mark-to-market accounting rules and to the insurance provision. It is unclear how they will work out those differences or how much the House will tinker with the bill when they get it. That said, the sense on the Hill is that everyone wants to get the vote behind them, key lawmakers say.

The Council of Institutional Investors and the CFA Institute oppose a suspension of mark-to-market — also known as "fair value" — accounting because, in their opinion, the rule offers investors transparency. "In the interest of investor confidence and the health of our capital markets and overall economy, we urge the SEC to resist calls from those with a questionable commitment to transparency and to reject any proposal that would suspend fair value accounting.