Senate Approves Bailout

Cnn is reporting that the Senate passed the $700 billion bailout plan. Here’s the story:

By Jeanne Sahadi, CNNMoney.com senior writer


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A shocking series of events that forever changed the financial markets.

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NEW
YORK (CNNMoney.com) — The Senate on Wednesday night passed a sweeping
and controversial financial bailout similar in key ways to one rejected
by the House just two days earlier.

The measure was passed by a
vote of 74 to 25 after more than three hours of floor debate in the
Senate. Both presidential candidates, Sens. Barack Obama, D-Illinois,
and John McCain, R-Arizona, voted in favor.

Like the bill the
House rejected, the core of the Senate bill is the Bush
administration’s plan to buy up to $700 billion of troubled assets from
financial institutions.

Those assets, mostly mortgage-related,
have caused a crisis of confidence in the credit markets. A major aim
of the plan is to free up banks to start lending again once their
balance sheets are cleared of toxic holdings.

But the Senate legislation also includes a number of new provisions aimed at Main Street.

The
changes are intended to attract more votes in the House, in particular
from House Republicans, two-thirds of whom voted against the bailout
plan.

The House is expected to take up the Senate measure for a vote on Friday, according to aides to Democratic leaders.

The
legislation, if passed by the House, would usher in one of the most
far-reaching interventions in the economy since the Great Depression.

Advocates
say the plan is crucial to government efforts to attack a credit crisis
that threatens the economy and would free up banks to lend more.
Opponents say it rewards bad decisions by Wall Street, puts taxpayers
at risk and fails to address the real economic problems facing
Americans.

“If we do not act responsibly today, we risk a crisis
in which senior citizens across America will lose their retirement
savings, small businesses won’t make payroll … and families won’t be
able to obtain mortgages for their homes or cars,” said Senate Majority
Leader Harry Reid, D-Nev., moments before the vote.

In a press
briefing after the vote, Senate Minority Leader Mitch McConnell. R-Ky.,
said, “This is a measure for Main Street, not Wall Street. [It will
help] to unfreeze our credit markets and get the American economy
working again.”

Because of Senate add-ons, the bill’s initial
price tag will be higher than the $700 billion that the Treasury would
use to buy troubled assets. But over time, supporters say, taxpayers
are likely to make back much if not all of the money the Treasury uses
because it will be investing in assets with underlying value.

How the Senate bill differs

The
package adds provisions to the House version – including temporarily
raising the FDIC insurance cap to $250,000 from $100,000. It says the
FDIC may not charge member banks more to cover the increase in
coverage. But that doesn’t prevent the agency from raising premiums to
cover existing concerns with the insurance fund, according to Jaret
Seiberg, a financial services analyst at the Stanford Group, a policy
research firm.

Instead, the bill allows the FDIC to borrow from
the Treasury to cover any losses that might occur as a result of the
higher insurance limit.

The bill also adds in three key elements
designed to attract House Republican votes – particularly popular tax
measures that have garnered bipartisan support.

It would extend a
number of renewable energy tax breaks for individuals and businesses,
including a deduction for the purchase of solar panels.

The
Senate bill would also continue a host of other expiring tax breaks.
Among them: the research and development credit for businesses and the
credit that allows individuals to deduct state and local sales taxes on
their federal returns.

In addition, the bill includes relief for
another year from the Alternative Minimum Tax, without which millions
of Americans would have to pay the so-called “income tax for the
wealthy.”

The debate over extending AMT relief is an annual
political ritual. It enjoys bipartisan support but deficit hawks on
both sides of the aisle contend the cost of providing that relief
should be paid for. Others argue it shouldn’t be paid for because the
AMT was never intended to hit the people the relief provisions would
protect. Nevertheless, lawmakers pass the measure every year or two.

How Senate bill mimics House version

For all the sweeteners added to the Senate bill, however, it is similar to the House bill in many key ways.

The
core is the Treasury’s proposal to let financial institutions sell to
the government their troubled assets, mostly mortgage-related. And as
in the House bill, the Senate would only allow the Treasury access to
the $700 billion in stages, with $250 billion being made available
immediately.

The Senate bill is also similar in that it includes
a number of provisions that supporters say would protect taxpayers. One
would direct the president to propose a bill requiring the financial
industry to reimburse taxpayers for any net losses from the program
after five years. And the Treasury would be allowed to take ownership
stakes in participating companies.

Like the House version, the
Senate bill includes a stipulation that the Treasury set up an
insurance program – to be funded with risk-based premiums paid by the
industry – to guarantee companies’ troubled assets, including
mortgage-backed securities, purchased before March 14, 2008.

And
it would place curbs on executive pay for companies selling assets or
buying insurance from Uncle Sam. One provision: Any bonus or incentive
paid to a senior executive officer for targets met would have to be
repaid if it’s later proven that earnings or profit statements were
inaccurate.

Lastly, the Senate version would set up two oversight
committees. A Financial Stability Board would include the Federal
Reserve chairman, the Securities and Exchange Commission chairman, the
Federal Home Finance Agency director, the Housing and Urban Development
secretary and the Treasury secretary.

A congressional oversight
panel, to which the Financial Stability Board would report, would have
five members appointed by House and Senate leadership from both parties.

Differing views

Despite
the Senate bill’s sweeteners, the bill did not garner unanimous support
because those who oppose the Treasury plan felt passionately it was the
wrong approach.

Sen. Maria Cantwell, D-Wash., a champion of the
energy tax breaks in the bill, said on Wednesday afternoon she
nevertheless would vote against the bill because she opposes “giving
the keys to the Treasury over to the private sector.”

Opponents
of the bill have said they resented being given a “my way or the
highway” choice to address what they acknowledge is a very serious
economic threat.

During the Senate debate on Wednesday, Sen.
David Vitter, R-La., characterized the administration’s request to
lawmakers 12 days ago as “crying ‘Fire!’ in a crowded theater, then
claiming the only [way out] is to tear down the walls when there are
many exit doors.”

Sen. Richard Shelby, R-Ala., said the Senate
will have “failed the American people” by acting hastily. “I agree we
need to do something. … [But] we haven’t spent any time figuring out
whether we’ve picked the best choice.”

Supporters of the bill say
they hate the position they are in and are angry, too, but say it’s
better to do something now than to let the credit crunch persist.

“There’s
no doubt that there may be other plans out there that, had we had two
or three or six months to develop … might serve our purposes better,”
said Obama during the floor debate. “But we don’t have that kind of
time. And we can’t afford to take a risk that the economy of the United
States of America and, as a consequence, the worldwide economy could be
plunged into a very, very deep hole.”

Potential costs

The
tax provisions of the Senate bill – the bulk of which come from the
addition of tax breaks from other legislation – may reduce federal tax
revenue by $110 billion over 10 years, according to estimates from the
Joint Committee on Taxation. More than half of that is due to the
1-year extension of AMT relief.

The Congressional Budget Office
said it cannot estimate the net budget effects of the troubled asset
program because of the many unknowns about that piece of the bill.

However,
the agency noted in a letter to lawmakers on Wednesday, it expects the
program “would entail some net budget cost” but that it would be
“substantially smaller than $700 billion.”

Overall, the CBO said, “the bill as a whole would increase the budget deficit over the next decade.”

All eyes on House

Now the fate of the bailout rests with the House.

The
lead House Republican, Rep. John Boehner, R-Ohio, was consulted on the
Senate’s plans and gave his “green light,” spokesman Kevin Smith said.
“We believe we’ll have a better chance to pass this bill than the one
that failed [Monday],” he added.

The plan could attract House
Republicans while simultaneously alienating bailout supporters among
the Democrats because the tax cuts in the revenue bill aren’t offset by
spending cuts or increased revenues.

One aide in the GOP Senate
leadership said getting House Democrats on board with the sweetened
bill will be “a fairly substantial problem.”

“I am talking with
my House colleagues about the Senate action and how to best proceed
taking that into consideration in determining what action in the House
will be most successful,” said House Majority Leader Steny Hoyer, D-Md.

CNN’s Jessica Yellin, Deirdre Walsh and Ted Barrett contributed to this story. To top of page

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