NY Times, September 30, 2008
House Locked in Vote on Bailout Plan
By CARL HULSE and DAVID M. HERSZENHORN
WASHINGTON — The House of Representatives was locked in a historic vote
on Monday on a $700 billion rescue of the financial industry, in what
would turn out to be the biggest federal intervention into private
markets in the nation’s history.
With enough “no” votes recorded to defeat the measure, barring a change
in position by some lawmakers, the markets were plunging early in the
afternoon. Meanwhile, House leaders were trying frantically to turn some
“no” votes into “yes” votes by pointing to the damage being done on Wall
Street.
Supporters of the bill had argued that it was necessary to avoid a
collapse of the economic system, a calamity that would drag down not
just Wall Street investment houses but possibly the savings and
portfolios of millions of Americans. Opponents said the bill was cobbled
together in too much haste and might amount to throwing good money from
taxpayers after bad investments from Wall Street gamblers.
Should the measure somehow clear the House, the Senate is expected to
vote on Wednesday. The Jewish holidays and potential procedural
obstacles made a vote before then virtually impossible, but Senate
vote-counters predicted that there was enough support in the chamber for
the measure to pass. President Bush has urged passage and spent much of
the morning telephoning wavering Republicans to plead for their support.
Many House members who voted for the bill held their noses, figuratively
speaking, as they did so. Representative John A. Boehner of Ohio, the
Republican minority leader, said there was too much at stake not to
support it. He urged members to reflect on the damage that a defeat of
the measure could mean “to your friends, your neighbors, your
constituents” as they might watch their retirement savings “shrivel up
to zero.”
And Representative Steny Hoyer of Maryland, who as Democratic majority
leader often clashes with Mr. Boehner, said that on this “day of
consequence for America” he and Mr. Boehner “speak with one voice” in
pleading for passage.
When it comes to America’s economy, Mr. Hoyer said, “none of us is an
island.”
The House debate was heated and, occasionally, emotional up to the last
minute, as illustrated by the remarks of two California lawmakers.
Representative Darrell Issa, a Republican, said he was “resolute” in his
opposition to the measure because it would betray party principles and
amount to “a coffin on top of Ronald Reagan’s coffin.”
But Representative Maxine Waters, a Democrat, said the measure was vital
to help financial institutions survive and keep people in their homes.
“There’s plenty of blame to go around,” she said, and attaching blame
should come later.
The House vote came after a weekend of tense negotiations produced a
rescue plan that Congressional leaders said was greatly strengthened by
new taxpayer safeguards. “If we defeat this bill today, it will be a
very bad day for the financial sector of the economy,” Representative
Barney Frank, Democrat of Massachusetts and the chairman of the
Financial Services Committee, said as the debate began and the stock
market opened sharply lower. The Standard & Poor’s 500 index was down
almost 3.4 percent at midmorning.
Earlier Monday, President Bush urged Congress to act quickly. Calling
the rescue bill “bold,” Mr. Bush praised lawmakers “from both sides of
the aisle” for reaching agreement, and said it would “help keep the
crisis in our financial system from spreading throughout our economy.”
He said the vote would be difficult, but he urged lawmakers to pass the
bill promptly. “A vote for this bill is a vote to prevent economic
damage to you and your community,” he said.
“We will make clear that the United States is serious about restoring
stability and confidence in our system,” he said, speaking at a lectern
set up on a path on the White House grounds.
He addressed concerns about the high cost of the legislation to
taxpayers, but he said he expected that “much if not all of the tax
dollars will be paid back.”
Despite Mr. Bush’s urgings, investors around the world continued to
demonstrate doubts that the bill would fully address the financial
crisis. European and Asian stock markets declined sharply on Monday,
especially in countries where major banks have had significant problems
with mortgage investments, like Britain and Ireland. In the credit
markets, investors once again bid up prices of Treasury securities and
shunned more risky debt.
The 110-page rescue bill, intended to ease a growing credit crisis, was
shaped by a frenzied week of political twists and turns that culminated
in an agreement between the Bush administration and Congressional
leaders early Sunday morning.
The measure faced stiff resistance from Republican and Democratic
lawmakers who portrayed it as a rush to economic judgment and an
undeserved aid package for high-flying financiers who chased big profits
through reckless investments.
Early in the House debate, Jeb Hensarling, Republican of Texas, said he
intended to vote against the package, which he said would put the nation
on “the slippery slope to socialism.” He said that he was afraid that it
ultimately would not work, leaving the taxpayers responsible for “the
mother of all debt.”
Another Texas Republican, John Culberson, spoke scathingly about the
unbridled power he said the bill would hand over to the Treasury
secretary, Henry M. Paulson Jr., whom he called “King Henry.”
A third Texan, Lloyd Doggett, a Democrat, said the negotiators had
“never seriously considered any alternative” to the administration’s
plan, and had only barely modified what they were given. He criticized
the plan for handing over sweeping new powers to an administration that
he said was to blame for allowing the crisis to develop in the first place.
With the financial package looming as a final piece of business before
lawmakers leave to campaign for the November elections, leaders of both
parties in the House and Senate intensified their efforts to sell
reluctant members of Congress on the legislation.
All sides had to surrender something. The administration had to accept
limits on executive pay and tougher oversight; Democrats had to
sacrifice a push to allow bankruptcy judges to rewrite mortgages; and
Republicans fell short in their effort to require that the federal
government insure, rather than buy, the bad debt.
Even so, lawmakers on all sides said the bill had been significantly
improved from the Bush administration’s original proposal.
The final version of the bill included a deal-sealing plan for
eventually recouping losses; if the Treasury program to purchase and
resell troubled mortgage-backed securities has lost money after five
years, the president must submit a plan to Congress to recover those
losses from the financial industry. Presumably that plan would involve
new fees or taxes, perhaps on securities transactions.
“This is a major, major change,” Speaker Nancy Pelosi said on Sunday
evening as she declared that negotiations were over and that a House
vote was planned for Monday, with Senate action to follow.
The deal would also restrict gold-plated farewells for executives of
companies that sell devalued assets to the Treasury Department.
House Republicans had threatened to scuttle the deal, and proposed a
vastly different approach that would have focused on insuring troubled
debt rather than buying it. In the end, the insurance proposal was
included on top of the purchasing power, but there is no requirement
that the Treasury secretary use it, leaving them short of that goal.
It is virtually impossible to know the ultimate cost of the rescue plan
to taxpayers, but Congressional leaders stressed that it would likely be
far less than $700 billion. Because the Treasury will buy assets with
the potential to resell them at a higher price, the government might
even turn a profit.
That provision, pushed by House Democrats, was the last to be agreed to
in a high-level series of talks that had top lawmakers and White House
economic advisers hustling between offices just off the Capitol Rotunda
until midnight on Saturday, scrambling to strike an agreement before
Asian markets opened Sunday night.
The bill calls for disbursing the money in parts, starting with $250
billion followed by $100 billion at the discretion of the president. The
Treasury can request the remaining $350 billion at any time, and
Congress must act to deny it if it disapproves.
Ms. Pelosi, Mr. Paulson and others taking part in the talks announced
that they had clinched a tentative deal at 12:30 a.m. Sunday, exhausted
and a little giddy after more than seven hours of sparring. There were
several tense moments, none more so than when Mr. Paulson, a critical
player, suddenly seemed short of breath and possibly ill. He was tired,
but fine.
Trying to bring around colleagues who remained uncertain of the plan,
its architects sounded the alarm about the potential consequences of
doing nothing. Senator Judd Gregg of New Hampshire, the senior
Republican on the Budget Committee and the lead Senate negotiator,
raised the prospect of an economic catastrophe.
“If we don’t pass it, we shouldn’t be a Congress,” Mr. Gregg said.
Both major presidential candidates, Senator John McCain of Arizona, the
Republican nominee, and Senator Barack Obama of Illinois, the Democratic
candidate, gave guarded endorsements of the bailout plan. Both Mr.
McCain and Mr. Obama had dipped into the negotiations during a
contentious White House meeting on Thursday.
On Sunday evening, both parties convened closed-door sessions in the
House to review the plan, and conservative House Republicans remained a
potential impediment.
But the party leadership was circulating information aimed at refuting
some of the main criticisms of the bailout, indicating they were poised
to support it. “I am encouraging every member of our conference whose
conscience will allow them to support this bill,” said Representative
John A. Boehner of Ohio, the Republican leader.
A series of business-oriented trade associations with influence with
Republicans also began weighing in on behalf of the plan.
The United States Chamber of Commerce issued a statement on Sunday night
that said it “believes the legislation contains the necessary elements
to successfully remove the uncertainty and stem the turmoil that has
plagued financial markets in recent weeks.”
Members of the conservative rank and file remained unconvinced.
“While it creates a gimmicky $700 billion installment plan, attempts to
improve transparency, and has new provisions cloaked as taxpayer
protections, its net effect is still a huge bailout of the financial
sector that will snuff out the free market system,” said Representative
Connie Mack, Republican of Florida.
Some Democrats bristled that they were now being called on to do the
financial bidding of an administration they had viewed as previously
uncooperative in dealing with executives who had performed irresponsibly
or worse.
“Financial crimes have been committed,” said Representative Marcy
Kaptur, Democrat of Ohio. “Now Congress is being asked to bail out the
culprits.”
Throughout Sunday, small groups of lawmakers could be found around the
Capitol exchanging their views on the plan. Some said they were willing
to take a political risk and back it.
One, Representative Jim Marshall, a Georgia Democrat facing a
re-election contest, told colleagues in a private meeting that he would
vote for the measure to bolster the economy. “I am willing to give up my
seat over this,” Mr. Marshall said, according to another person who was
there.
The architects of the plan said they realized they were calling on
Congress to cast a tough vote since lawmakers might not get credit for
averting a financial crisis since some constituents will not believe one
was looming.
“Avoiding a catastrophe won’t be recognized,” said Senator Christopher
J. Dodd, Democrat of Connecticut and chairman of the Senate banking
committee. “This economy is not going to have a blossoming on Wednesday.”
But he and others said the support from the two presidential contenders
should provide some comfort to nervous lawmakers.
One of the more contentious issues was how to limit the pay of
executives whose firms seek government aid, a top priority for Democrats
and even some Republican lawmakers. But it was a concern for Mr.
Paulson, who worried about discouraging firms from participating in the
rescue plan, which seeks to convince companies to sell potentially
valuable assets to the government at relatively bargain prices.
In the end, they settled on different rules for different companies
depending on how they participate in the bailout. Firms that sell
distressed debt directly to the government will be subject to tougher
pay limits, including a mechanism to recover any bonuses or other pay
based on corporate earnings that turn out to be inaccurate or
fraudulent, and a ban on so-called “golden parachute” severance packages
as long as the government has a stake in the firm.
Companies that participate in auctions, or other market-making
mechanisms, and sell more than $300 million in troubled financial
instruments to the government, will be barred from making any new
employment contract with a senior executive that provides a golden
parachute in the event of “involuntary termination, bankruptcy filing,
insolvency or receivership.”
While some critics said the limits did not go far enough, lawmakers
described the provision as a historic first step by Congress to limit
exorbitant pay of corporate titans. “I think we wrote it as tight as we
can get it in here,” Mr. Dodd said.
Reporting was contributed by Keith Bradsher from Hong Kong, Robert Pear
from Washington and Graham Bowley from New York.
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