Senate passes new bail out plan

Oct 2 2008

The US Senate passed a £385 billion rescue package for the nation’s troubled economy today.

President George Bush had said the measures were needed to stave off financial panic and avoid a “long and painful recession” and the Senate passed the bill by 74 votes to 25.

The upper house of the US Congress rescued the proposals, seen by many Americans as a 700 billion dollar (£385bn) bail-out of Wall Street, by adding more than 100 billion dollars (£56.2bn) of sweeteners in a bid to win more support from members of the lower house, which rejected the original proposals on Monday.

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US presidential rivals John McCain and Barack Obama shook hands on the floor of the Senate before they both backed the Bill, as did Delaware senator Joe Biden, the Democratic vice presidential nominee.

During the debate in the Senate, Democratic presidential nominee Mr Obama said: “What it means is that if we don’t act it will be harder for Americans to get a mortgage for their home, or loans they need to buy a car, or send their children to college.”

Earlier in the day, in a speech at the Truman Library and Museum in Independence, Missouri, his Republican rival Mr McCain said: “There will be a time to fix the blame for all that has happened. But our duty right now is to fix the problem.”

Before the vote, President Bush urged the Senate to take the financial rescue package “very seriously”.

He said the legislation was needed “to stabilise the situation, so it doesn’t get worse”.

Speaking in the Oval Office, he added: “The Bill is different. It has been improved and I am confident it will pass.”

The Senate specialises in high-stakes legislating-by-enticement, and the long list of sweeteners it added was designed to attract votes from various constituencies which opposed the original Bill.

The Senate added 100 billion dollars (£55.6bn) in tax breaks for businesses and the middle class and raised the cap on federal deposit insurance from 100,000 dollars (£55,600) to 250,000 dollars (£139,000).

As revised by the Senate, the upper house of the US Congress, the package would extend several tax breaks popular with businesses.

The amendments would keep the alternative minimum tax from hitting 20 million middle-income Americans, and provide eight billion dollars (£4.4bn) in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana.

The Securities and Exchange Commission also decided to ease rules that force companies to devalue assets on their balance sheets to reflect the price they can get on the market.

The Bill will now move towards a second debate in the lower house of Congress, the House of Representatives which rejected the Bill earlier this week, and is expected to go to a vote on Friday.

It was the House Republicans who were seen as the biggest obstacle to getting the bill passed, with 133 Republicans and 95 Democrats refusing to back the rescue package.

They seem to be pleased by the Senate amendments, but some conservative House Democrats, known as “Blue Dogs”, will be repulsed by the tax breaks, and could vote no because they have said they do not want to see the country’s deficit run up even further.

A second House vote is unlikely to be taken unless US political leaders are sure the Bill has the support of its members.

The vote against the proposals earlier this week sent the Dow Jones Industrials Average into a record 777.68 point drop - more than on the first day of trading after the September 11 terror attacks - and political and financial leaders will be keen to avoid a repeat of such a scenario.

Success in the House would see it signed into law by the president.

Mr Bush, US Treasury Secretary Hank Paulson and political leaders on both sides say the Bill is necessary to restore confidence and avoid “the real prospect of economic hardship for millions of Americans”.

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Republican senator Mitch McConnell, the Senate minority leader, said the vote showed the Senate ``at its finest''.

“In the years that I’ve been here I can’t recall a single time where, in this close proximity to an election, both sides have risen above the temptation to engage in partisan game-playing, if you will, to address an issue of magnitude, great magnitude,” he said.

He said both Republicans and Democrats, as well as Mr McCain and Mr Obama, had clearly demonstrated that “in the toughest possible situation, five weeks from an election, that we can come together and address a major crisis”.

He said it was “an important occasion for our country” and senators had “much to be proud of”.

Mr McConnell added: “It doesn’t entirely solve the problem, but it begins to move us in the direction of getting the American economy back where it needs to be very soon.”

Democratic senator Harry Reid, the Senate majority leader, said it was a measure for Main Street, not Wall Street, and praised the work of Senators Chris Dodd and Judd Gregg, who helped negotiate the deal.

“Having been in Washington 26 years, it’s hard for some to comprehend, I guess, that there are people who are more impressive each time you work with them,” he said.

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In a statement issued by the White House, Mr Bush applauded the Senate for its ``strong bipartisan vote''.

He praised those involved in the negotiations and said: “They worked across the aisle to make vital improvements to the rescue package I sent Congress last month - including an expansion of deposit insurance that will help protect the savings of American families and small businesses.

“The Bill the Senate passed is essential to the financial security of every American.

“It is aimed at helping American families who need to borrow money to buy a car or fund a college education.

“It is aimed at helping small businesses that depend on financing to meet their payrolls and stock their shelves.

“And it is aimed at helping state and local governments that rely on the credit markets to fund basic services and meet the needs of their citizens.”

Mr Bush added: “The House will now take up this rescue legislation.

“With the improvements the Senate has made, I believe members of both parties in the House can support this legislation.

“The American people expect - and our economy demands - that the House pass this good Bill this week and send it to my desk.”

Mr Dodd, chairman of the Senate banking committee, said the most important thing the US Congress could do was “to restore America’s confidence and its optimism and its belief that their institutions of government can respond in a moment like this”.

“We can solve this problem and offer that sense of hope that tomorrow could be a better day,” he said.

He added there were “many, many difficult months ahead to get this right” but none of that could happen without this vote.

“So the journey in front of us is going to be difficult and long, but I think America tonight, I hope, saw our Congress, saw our United States’ Senate, acting in a way that our forebears and the founders intended to act and I’m deeply proud to have been a part of this moment.”

Mr Gregg described participating in efforts to address the US financial crisis as a “pleasant and extraordinary experience”.

“This is the way government’s supposed to work folks, and it did, and I think we can take a little pride in that,” he said.