Washington: With the economy on the brink and elections looming, the US Congress approved an unprecedented $700 billion government bailout of the battered financial industry on Friday, and President George W. Bush almost immediately signed the bill into law.
“We have acted boldly to prevent the crisis on Wall Street from becoming a crisis in communities across our country,” Bush said shortly after the vote, although he conceded, “our economy continues to face serious challenges.”
The final vote, 263-171 in the House of Representatives, capped two weeks of tumult in Congress and on Wall Street, punctuated by daily warnings that the country confronted the gravest economic crisis since the stock market crash of 1929 if lawmakers failed to act. There were 58 more votes for the measure than in an earlier version that failed on Monday.
“We all know that we are in the midst of a financial crisis,” House Republican Leader John Boehner said shortly before casting his vote for government intervention in private capital markets that was unthinkable only a month ago.
“And we know that if we do nothing, this crisis is likely to worsen and to put us into an economic slump like most of us have never seen.”
The leader of the House, Speaker Nancy Pelosi, a Democrat, said the bill was needed to “begin to shape the financial stability of our country and the economic security of our people.”
Treasury Secretary Henry Paulson pledged to begin using his new authority quickly, Federal Reserve Chairman Ben Bernanke said the central bank would work closely with the administration.
Stocks rose on Wall Street in anticipation of the bill’s passage, on a day on which investors absorbed a bad unemployment report. The Labour Department said employers slashed 1,59,000 jobs in September, the largest cut in five years and further evidence of a sinking economy.
The US action was certain to relieve pressure in international financial markets, which feared that a deep slump in the US economy could drag the rest of the world into recession.
At its core, the bill gives the Treasury Department $700 billion to purchase bad mortage-related securities that are weighing down the balance sheets of institutions that hold them. The flow of credit has slowed, in some cases drying up, threatening the ability of businesses to conduct routine operations or expand, and adversely affecting consumers seeking financing for mortgages, cars and student loans. Some state government have also experienced difficulty borrowing money.
The House vote marked a sharp change from Monday, when an earlier measure was sent down to defeat, largely at the hands of angry conservative Republicans. A total of 33 Democrats and 25 Republicans switched from opposition to support. Several of the Democrats were members of the Congressional Black Caucus who said presidential candidate Barack Obama had pledged to support legislation easing the burden on consumers if he wins the White House.
Republican presidential candidate John McCain also lobbied for the measure, according to aides who declined to release a list of lawmakers he called.
After Monday’s vote, Senate leaders quickly took custody of the measure, adding on $110 billion in tax and spending provisions designed to attract additional support, then grafting on legislation mandating broader mental health coverage in the insurance industry. The revised measure won Senate approval Wednesday night, 74-25, setting up a furious round of lobbying in the House as the administration, congressional leaders, the major party presidential candidates and outside groups joined forces behind the measure.
In addition, the measure was changed to broaden the federal government’s deposit insurance programme, and the Securites and Exchange Commission loosened a regulation to ease the impact of the distressed assets on the balance sheet of financial institutions.
Despite ocassionally strong criticism of the added spending and tax measures, the maneuvers worked — augmented by a sudden switch in public opinion that occurred after the stock market took its largest-ever one-day dive on Monday.
Critics were unrelenting.
“How can we have capitalism on the way up and socialism on the way down,” said Rep. Jeb Hensarling, a leader among conservative Republicans who oppose the central thrust of the legislation — an unprecedented federal intervention into the private capital markets.
It was little more than two weeks ago that Paulson and Bernanke concluded that the economy was in such danger that a massive government intervention in the private markets was essential.
In the moments before the vote, Rep. Barney Frank, a Democrat and chairman of the House Financial Services Committee, pledged “serious surgery” next year to address the underlying causes of the crisis.
If anything, the economic news added to the sense of urgency.
The Labour Department said initial claims for jobless benefits had increased last week to the highest level since the gloomy days after the 2001 terror attacks. The news of the payroll cuts came on top of Thursday’s Commerce Department report that factory orders in August plunged by 4%.
Typifying arguments the problem no longer is just a Wall Street issue but also one for Main Street, lawmakers from California and Florida said their state governments were beginning to experience trouble borrowing funds for their own operations.
Pelosi said, “We must win it for Mr. and Mrs. Jones on Main Street.”