Markets hinge on uncertain vote

Under pressure, the US House of Representatives is expected to consider today another financial rescue package.

Traders work on the floor of the New York Stock Exchange, on Oct 2, 2008.

WASHINGTON // Under vastly stepped-up pressure, the US House of Representatives is expected to consider today another financial rescue package, just days after its scuttling of the first sent US and world markets plunging. Legislators will vote on a new version of the bill written by the Senate, which passed it on Wednesday by a healthy margin and with strong bipartisan support, along with an unmistakable message to the House: now it is your turn. The prospect failed to calm nerves on the US and global markets yesterday. Even despite the Senate vote, which was supposed to bolster confidence, the Dow Jones Industrial Average was down about three per cent by late afternoon, and European and Asian stocks, on balance, fell. The new bill is about 340 pages longer than the initial one, a sign of how it has changed. The Senate packed it with various legislative incentives designed to entice at least some of those who rejected it into switching their votes. But whether the so-called sweeteners - including various tax breaks for individuals and businesses and an increase in the limit on federal insurance for bank deposits - are enough to secure its passage in a chamber that just days ago erupted in an unexpected bipartisan rebellion is not clear.

Even as they sought to line up support for the new package, House leaders were leery to speculate too readily on what would happen, and for good reason. The day the bill came up 12 votes short in the House, everyone - from congressional leaders who had negotiated the package to George W Bush - had expressed confidence it would pass. While leaders invoked a cautious optimism about the bill's prospects, the palpable feeling in Washington in the lead-up to its consideration was this: nothing was certain until all the votes were cast and tallied. Some House legislators who rejected the initial bill have said that the amended version - which also includes a funding boost for rural schools and a provision guaranteeing that mental illness will be covered by insurance companies like any other illness - is indeed better and that they will consider voting for it. That would set them up to have to explain to their constituents a flip-flop. But others have indicated they still will not vote for it, as its fundamental allowance - the spending of billions in taxpayer dollars to fix a situation they blame on Wall Street - remains the same. And while the tax breaks may appeal to some Republicans, they simultaneously could cost the bill support among conservative Democrats who believe on philosophical grounds that any such breaks should be "deficit neutral", or offset by spending cuts or tax increases. A second defeat in the House would all but surely have a devastating effect on markets worldwide, just as the first did. It would also ensure a continuation of the credit freeze that is preventing banks from issuing loans to businesses and individuals and forcing municipal governments to postpone public works and other projects. "The risk of underreacting here is much bigger than the risk of overreacting, and the risk of not giving the [treasury] secretary [Henry Paulson] enough authority is much bigger than the risk of giving him too much authority," William G Gale, the director of the economic studies programme at the Brookings Institution, said this week. With the economic stakes so high, the lobbying effort on behalf of the bill intensified. Mr Bush, who met yesterday at the White House with business owners hard hit by the credit freeze in an attempt to highlight for lawmakers and the public that the financial crisis is affecting everyone, earlier commended the Senate for its "strong bipartisan vote" and called on the House to follow suit. "With the improvements the Senate has made, I believe members of both parties in the House can support this legislation," Mr Bush said after the bill passed the Senate, 74 to 25. "The American people expect - and our economy demands - that the House pass this good bill this week and send it to my desk." Groups including the AARP (American Association for Retired Persons) and the US Chamber of Commerce likewise unleashed their lobbyists and urged the House to embrace the legislation. "It's an all-out blitz at this point," said JP Fielder, a spokesman for the Chamber of Commerce. "We have radio ads up on the air, we have print ads throughout the various publications, we have a full blitz on the Hill with our lobbying team." Depending on the vote's outcome, the Senate itself may end up having been the biggest lobbyist of all. During the debate there on Wednesday, several senators made direct appeals to their House colleagues to pass the legislation - and quickly - sometimes sounding like an older brother teaching a younger sibling a tough lesson. A few called it the most difficult vote of their careers, and soberly stressed the need to do what is right even if it is unpopular. "I don't think any of us want irresponsibility on Wall Street compounded by ineffectiveness in Washington," Hillary Clinton, a New York Democratic senator, said. "That's why we must act, even as we do so with regret and reservations, because we have little choice. We cannot let the perfect be the enemy of what's good - or, in this case - what's necessary." After the bill passed, Judd Gregg, a Republican from New Hampshire who was involved in negotiating the package, commended his Senate colleagues for stepping to the plate and rising above partisanship, a message he surely hoped the House would hear. "This is the way government's supposed to work, folks," he said, "and it did." [e-mail] * With additional reporting by Steven Stanek, foreign correspondent