Congress on Friday gave Wall Street the financial lifeline it was seeking and President Bush immediately signed it into law, as the House reversed course and approved a $700 billion bailout package in the wake of markets roiled by the failure of storied investment firms and major banks.
The House passed the measure 263-171, following the Senate’s lead in passing a reformulated bill that added tax breaks, an increase in the federal deposit insurance limit and other “sweeteners” designed to increase support among Republicans.
Converts, both Democratic and Republican, said they listened to taxpayers’ concerns and tried to ensure their market investments and mortgages were protected, as well as providing some middle-class tax relief.
Rep. Donna F. Edwards, a Maryland Democrat who on Monday voted against the first bailout package, said conversations she had this week with constituents, as well as a Thursday telephone call from Democratic presidential nominee Sen. Barack Obama, persuaded her to switch her vote to “Yes” Friday.
“I am convinced today that even left with this imperfect product, the choice is this or nothing,” she said. “For me, doing nothing was never an option.”
Democrats, who have made the struggling economy a central theme this election season, loudly praised the legislation, adding that it was only the first step in a long overdue overhaul of Wall Street regulations and oversight that will come with an Obama presidency and a Democratic Congress.
“The message Democrats will continue to pound is how off-track this economy is, and how we can’t risk four more years of Bush economic policies that were rubber-stamped by Republicans in Congress,” said Doug Thornell, spokesman with the Democratic Congressional Campaign Committee (DCCC), the fundraising arm of House Democrats.
The measure was supported by 172 Democrats and 91 Republicans, while 108 Republicans and 63 Democrats opposed it. There were 58 more votes for the measure than an earlier version that failed on Monday.
Thirty-three Democrats and 25 Republicans switched their votes from “No” to “Yes.” One Democrat - Jim McDermott of Washington - switched in the other direction, voting against the bill Friday after supporting it Monday, but that was offset by Rep. Jerry Weller of Illinois, who voted “Yes” on Friday after not voting Monday.
Mr. Obama and his Republican presidential rival Sen. John McCain, who both voted for the package Wednesday, praised the House for its action Friday in separate statements.
“This rescue bill is not perfect, and it is an outrage that it’s even necessary. But we must stop the damage to our economy done by corrupt and incompetent practices on Wall Street and in Washington,” Mr. McCain said.
Mr. Obama said that the bill “was absolutely necessary to prevent an economic catastrophe that could have cost millions of jobs and forced businesses across the country into bankruptcy.”
But U.S. stocks fell heavily Friday, despite rising immediately after the House vote, as investors remained nervous about a global credit squeeze and the weak economy.
The Dow Jones Industrial Average lost 157.47, or 1.50 percent, to close at 10,325.38, while the Nasdaq Composite Index slid 29.33 points, or 1.48 percent, to 1,947.39. Standard & Poor’s 500 Index shed 15.05, or 1.35 percent, to 1,099.23.
And a dismal jobs report Friday showed 159,000 people added to the ranks of the unemployed.
“Nine straight months of job losses is a painful verdict on the [Bush administration’s] economic mismanagement of the last eight years,” House Speaker Nancy Pelosi said before Friday’s vote, echoing the partisan tone from a speech she was criticized for giving prior to Monday’s failed House vote.
The core of the Wall Street rescue package, proposed by Treasury Secretary Henry M. Paulson Jr. just two weeks ago, will give the Treasury up to $700 billion to buy up now-toxic mortgages and mortgage-related securities that are clogging the books of the nation’s banks and financial firms.
Until those assets are addressed, Mr. Paulson has argued, banks will not lend, consumers and businesses will be unable to borrow, and the aftershocks will be felt in pensions, savings plans, paychecks and payrolls across the country.
President Bush signed the legislation into law less than two hours after it passed the House. He then walked off the White House grounds for an unscheduled trip to the Treasury Building, which is next door, to thank Mr. Paulson and department employees.
“I know that your people are exhausted in there,” Mr. Bush said to Mr. Paulson, who nodded. “Sometimes people in government never get thanked enough.”
House leaders from both party’s pressed their members throughout the week to get the extra votes needed to pass the bill since its initial failure Monday, with phone calls to members and meetings to shore up existing support and switch votes from lawmakers once leery of angering voters disgusted by the idea of bailing out Wall Street.
The financial markets began to sour in mid-September with the news that the government would not bail out the venerable investment bank Lehman Brothers and that Merrill Lynch had been forced to sell itself to Bank of America.
Days later, when insurance giant American International Group (AIG) only avoided collapse with a $85 billion Treasury loan, stock market losses began to plummet, prompting the Federal Reserve to inject $180 billion into the global market.
Mr. Paulson and Federal Reserve Chairman Ben S. Bernanke then met with Mr. Bush and pushed for the $700 billion rescue plan as an option of last resort.
Lawmakers said they improved the original three-page Paulson blueprint, adding several layers of oversight, some relief for homeowners struggling to meet mortgage payments, strict limits on executive pay for those who participate in the plan, and an ownership stake for the federal government in the companies being helped.
When the U.S. housing market recovers and the mortgages gain in value, the government stands to recoup at least some of the money spent.
The deal also includes a tax-cut package that will eliminate certain business and energy-related taxes and the alternative minimum tax, which would have hit about 22 million Americans with a tax increase of about $2,000.
The violent swings in the market and an ease in constituent opposition to the rescue plan in recent days also helped win over leery House members from both parties.
Rep. Elijah E. Cummings, a Maryland Democrat who voted against the bailout Monday, said he changed his mind and supported the measure Friday because of his constituents’ growing despair over the credit crunch, including students who can’t get loans and business with canceled credit lines.
“What is happening on Wall Street is bleeding into every aspect of our society, including the neighborhoods I represent,” said the former chairman of the Congressional Black Caucus.
He added that a phone call from Mr. Obama further persuaded him to support the measure.
On the other side of the aisle, Rep. Joe Knollenberg of Michigan was among the Republicans to change their votes. He did so despite having one of the toughest re-election races in Congress and facing almost certain attack for making the switch.
“This was the right vote to take. It was a tough vote,” the nine-term Republican told reporters as he left the House floor. “You’re damned if you do and damned if you don’t.”
He said additions to the bill, including relief from the alternative minimum income tax and an increase to $250,000 of the Federal Deposit Insurance Corp. guarantee and mounting support among constituents prompted the switch.
But many fiscally conservative House members on both sides of the aisle remained opposed to the bailout, saying that it was an irresponsible use of taxpayer money.
“I really believe this is $700 billion down the rat hole,” said Rep. Gene Taylor of Mississippi, a leading member of the conservative Blue Dog Democratic coalition.
Mr. Taylor said that he feared Friday’s vote would make it more difficult for Congress to reject future industry bailouts.
“This is just the first in a line of groups that are going to want a bailout, because it will be like, ‘We know where to go to get easy money - we’ll go to Congress,’” he said.
The nation’s focus on the struggling economy already has helped Democratic campaigns from Mr. Obama’s bid for the White House to congressional races, party officials say.
“The bailout debate in Congress had “sharpened people’s focus on how serious the economic situation is in this country,” said Mr. Thornell of the DCCC.
House Democrats added that Friday’s bailout package was only the first step in ensuring that the national economy has lasting stability, promising additional market reforms when Congress returns to work in early 2009.
“Now to the next part,” said House Financial Services Committee Chairman Barney Frank, Massachusetts Democrat and a key architect of the bipartisan measure. “It would be highly irresponsible, a betrayal of our oath, if we were to stop here.”
House Minority Whip Roy Blunt, Missouri Republican, said that “though not a perfect bill, I was proud to lend my hand to the process in a way to help ensure taxpayer protections were included, and unrelated special-interest giveaways were left out.”