WASHINGTON – Getting the financial rescue through Congress may have been the easy part. Getting it to work may prove the tougher task.
After two weeks of anguishing debate, Congress passed and President George W. Bush signed the enormous plan to save the financial industry and prop up the economy in hopes of avoiding an unthinkable free fall with Election Day just a month away.
Treasury Secretary Henry Paulson, at a meeting last month, had shocked congressional leaders into action by warning of pending economic collapse without immediate federal intervention. After the climatic House vote on Friday, he said aides already were working out details and lining up advisers from outside the government so the money could start flowing. The goal is to unfreeze credit markets.
The immediate response to the 263-171 vote was not promising. Wall Street, which plunged a record 778 points after the House initially rejected the bill last Monday, fell 157 points. More economic bad news — a jump in job losses — outweighed the good news from Capitol Hill.
"Congress took a big step in the direction of at least giving us the tools necessary to bring some stability into the marketplace," Bush said Saturday while visiting Midland, Texas, his boyhood hometown.
Earlier, in his weekly radio address, Bush spoke cautiously about the economy's future. "My administration will move as quickly as possible, but the benefits of this package will not all be felt immediately. The federal government will undertake this rescue plan at a careful and deliberate pace to ensure that your tax dollars are spent wisely," he said.
Bush acknowledged that people are worried about their personal finances. "I'm confident by getting our markets moving, we will help unleash the key to our continued economic success: the entrepreneurial spirit of the American people," he said.
House Republican leader John Boehner of Ohio said lawmakers knew that if they failed to act, the crisis probably would worsen and "put us in a slump the likes of which most of us have never seen." The bailout, said House Speaker Nancy Pelosi, a California Democrat, is intended to help address "the real pain felt by Mr. and Mrs. Jones on Main Street."
The Bush administration gained broad authority to buy up toxic mortgage-related investments and other distressed assets from shaky financial institutions. The hope is it will restore confidence in markets and thaw a near-freeze in credit availability that has begun to affect the ability of banks to lend, businesses to obtain money for payrolls and investments, and individuals to gain credit to buy a home or a car.
In an attempt to aid smaller banks with serious liquidity problems, the measure raises the ceiling on federally insured deposits from $100,000 to $250,000. It increases federal oversight over Wall Street transactions and assures that chief executives whose companies benefit from the bailout do not leave with huge golden parachute payoffs.
Last Monday, despite pleas from Bush and his financial advisers and the support of congressional leaders, the House voted 228-205 to reject the rescue plan. Stock markets around the world plunged, then recovered somewhat as economists warned that the U.S. was facing its gravest economic threat since the Great Depression.
But the 95 Democrats and 133 Republicans who voted against the bill were responding to a deluge of calls and messages from constituents demanding defeat of the plan. Many saw it as a $700 billion giveaway to Wall Street when average people were getting no help.
Shortly before recessing for the election, senators stepped in and approved legislation Wednesday that linked the rescue to the extension of popular tax breaks for research and development, renewable energy and victims of natural disasters. The $110 billion in additions included benefits parity for people with mental health problems. The Senate also added the boost in the ceiling for bank deposits.
Those extras were enough to sway some House members who voted "no" the first time around. Others were swamped by calls from business and political leaders warning of the possible consequences of inaction.
California Gov. Arnold Schwarzenegger sent out a letter that said without a clear resolution to the crisis, his state and others "may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal Treasury for short-term financing."
Democrat presidential nominee Barack Obama spoke to many in the Congressional Black Caucus and helped persuade 13 to switch their votes. Nine freshmen Democrats also switched to "yes" votes after a conference call with Obama in which he promised an economic stimulus bill would be a top priority if he is elected.
Republican John McCain also lobbied for the measure, according to aides who declined to release a list of lawmakers he called.
In the end, 33 Democrats and 25 Republicans switched from opposition to support. In all, 91 Republicans joined 172 Democrats to support the measure while 108 Republicans and 63 Democrats voted 'no."'