Senate backs new bailout plan

The revised draft will now return to the US House of Representatives.

The US Senate approved the US$700bn Wall Street bailout package by a vote of 74-25 amid a widening global crisis sparked by the collapse of the US housing market.

WASHINGTON // The US Senate last night passed a modified version of the financial bailout package rejected by the House of Representatives this week, a move designed to restore confidence and take an initial step toward getting credit flowing again. The essence of the revised Senate plan, which was approved 74 to 25, remains the same: it allows the Treasury Department to buy up as much as US$700 billion (Dh2.6 trillion) in bad assets at financially troubled institutions. But the new legislation added some sweeteners that could make it more palatable to the House, where a bipartisan revolt left it dead on Monday. Among them are higher insurance limits for bank deposits to protect consumers and a package of tax breaks for individuals and businesses. The importance afforded the measure was underscored by the presence of two senators who rarely set foot in the legislative chamber these days: the Republican and Democratic presidential nominees, John McCain and Barack Obama, stepped off the campaign trail to return to the nation's capital to cast votes in favour of it. So did Mr Obama's running mate, Joe Biden. During floor remarks, senator after senator spoke of the bill - some with anger - as an imperfect solution to the crisis, but one they called necessary to prevent the financial distress from worsening. Many made a direct plea to their House colleagues to take the Senate's lead and pass the legislation. "This plan is not perfect. Democrats and Republicans in Congress have legitimate concerns about it," Mr Obama said. "But it's clear that from my perspective that this is what we have to do right now to prevent the possibility of a crisis turning into a catastrophe." Judd Gregg of New Hampshire, the top Republican on the Senate budget committee, said passing the bill was akin to using a tourniquet to stanch the bleeding of a severely wounded patient. "Is it the answer to the whole problem? No. Please don't assume that after we pass this bill ? that suddenly light is going to shine on the American economy," Mr Gregg said. "It's not the answer to all our problems, but without it we are going to have a much more severe and difficult time." Mr McCain did not make remarks on the Senate floor but said earlier in the day that if the bill failed, the financial crisis would become a "disaster". The European and Asian markets were up yesterday in anticipation of the bill's passage in the Senate, where the idea of a financial rescue enjoyed more support from the start. Still, its fate in the House - where it came up 12 votes short - remains unclear. Speaking on NBC's "Today" show yesterday morning, House leaders from both parties pointed to a shifting sentiment on Capitol Hill, and on Main Street, toward the need for a government intervention. Roy Blunt, a Missouri Republican and the minority whip, said calls to lawmakers' offices are no longer overwhelmingly against the bailout, as many Americans have begun to view the crisis as something that personally affects them and the financial package as perhaps the best, and only, way out. But Steny Hoyer, a Maryland Democrat who is the House majority leader, warned that parts of the Senate version could prove problematic on the House side. "There's no doubt the tax package is very controversial," Mr Hoyer said. "I'm not particularly pleased with that addition myself, very frankly." Bill Frenzel, a former long-time Republican congressman from Minnesota who is a guest scholar at the Brookings Institution, said some fiscally conservative Democrats, who believe that any tax breaks should be offset by spending cuts or tax hikes elsewhere, may not back the Senate bill. "I think you lose some of those," he said yesterday during a panel discussion at Brookings. "My guess is you will win more Republicans because Republicans love to cut taxes, whatever the effect is on the economy. I think that will be well-received." The House is scheduled to reconvene at noon today, and a vote could be held tomorrow. Several House Democrats, including Peter DeFazio of Oregon and Marcy Kaptur of Ohio, are pushing their own version of a package they say would cost taxpayers nothing. The "No BAILOUTS Act" - Bringing Accountability, Increased Liquidity, Oversight and Upholding Taxpayer Security - addresses the crisis in main from a regulatory standpoint, without putting taxpayers on the financial hook. The House's surprise defeat of the bill on Monday immediately prompted a round of finger-pointing on Capitol Hill and the campaign trail, but lawmakers on both sides have since begun to take some responsibility for not effectively marketing the plan, especially to the public. A new and very deliberate effort is under way to recast the legislation as a rescue plan rather than a bailout, as it has been widely called by its critics and the media. Tony Fratto, a White House spokesman, called the word bailout "unfortunate shorthand" for a complex problem. "Our critics took the language of a bailout for Wall Street," he said. "And I think it's undeniable that the media chose that branding of this debate. It is not a bailout for Wall Street. It is certainly not a bailout for Wall Street CEOs. It is an effort to fix this problem of a frozen asset class that has implications over our entire economy." Mr McCain and Mr Obama are both using the term "rescue". And Mr Obama, who is sometimes criticised for sounding professorial on the campaign stump, came off as anything but at a rally this week when he sought to drive home the need for action. "If your neighbour's house is burning, you're not gonna spend a whole lot of time saying, 'Well, that guy was always irresponsible. He always left the stove on. He always was smoking in bed'," Mr Obama said in Reno, Nevada. "All those things may be true, but his house could end up affecting your house." "We've got to make sure that we put the fire out, and then go start making sure that these folks stop leaving the stove on," he said. Mr Frenzel of Brookings said the Senate's passage of the bill "may embolden a few of the more quavering members of the House who voted against it". "This was one of the very few times where you have the White House and the joint management of the Congress endorsing the bill and with great vigour ? and that leadership was not followed," he said of the bill's House defeat. "I don't fault the leadership as much as the followership." [e-mail]