Resounding yes to bailout

As markets quake, House passes and Bush signs $700b rescue plan

WASHINGTON - The House of Representatives, heeding warnings about an imminent "economic catastrophe," yesterday decisively passed a revised, massive $700 billion financial rescue package, allowing the Bush administration to implement a plan to address the greatest Wall Street crisis since the Great Depression.

In a reversal of Monday's tense House session, in which the bill fell 12 votes short, triggering a record-setting dive in the stock market, congressional leaders yesterday picked up 58 votes, more than enough to approve it on a 263-171 tally. Within hours, the bill was sent to the White House for President Bush's signature.

"We were dealt a bad hand, and we made the most of it," House Speaker Nancy Pelosi said in a press conference afterward. She vowed that lawmakers will keep a close eye on Wall Street, and charged House Financial Services Committee Chairman Barney Frank, a Newton Democrat, and Representative Henry Waxman, Democrat of California, to chair hearings on the matter.

The bill helps ensure "the economic security of our country," she said. "And the high fliers on Wall Street will no longer be able to jeopardize that future."

Bush congratulated Congress and said the bill will "stabilize our financial markets and maintain a leading role in the global economy." Nonetheless, the financial markets still showed anxiety about the weakened state of the economy. Despite the bill's passage, the Dow Jones industrial average dropped 157.47 points to 10,325.38.

The House vote capped a dramatic week on Capitol Hill, one which saw the Senate resurrect a bill Bush said he needed to calm a jittery stock market and unlock a frozen credit market. House leaders said the Senate's overwhelming, bipartisan approval of the measure on Wednesday - and the addition of more than $100 billion in sweeteners, including an array of tax breaks, a "fix" of the alternative minimum tax and a measure that put mental-health insurance benefits on par with standard health benefits - helped them attract the support of skeptical measures.

But Frank said most members who moved from no to yes did so because they feared that rejecting the package would lead to widespread economic chaos, further draining the value of retirement accounts and freezing credit. When the House voted down the first proposal, Wall Street stocks plummeted by a record 777.68 points, setting off a roller-coast week in the markets.

"The major impact that changed votes was the economic reality," Frank said. "It was people being told that states like Massachusetts and California couldn't roll over [financial] notes, that construction sites were being shut down, that automobile loans were being stuck" as the ability to get credit hardened.

Among those who switched their votes was Representative John Tierney, a Salem Democrat, who decided to support the measure after seeing the "state of panic in the markets." Representatives Stephen Lynch of South Boston and William Delahunt of Quincy, two other Massachusetts Democrats who helped defeat the bill on Monday, voted no again yesterday, objecting to the bill on principle.

Unlike the often-fiery debates that occured on the House floor on Monday, yesterday's session was relatively muted, with members on both sides of the issue seeming to be aware that approval was certain.

Pelosi, who on Monday angered some Republicans by blasting the Bush administration's economic policies, focused yesterday on the impact of killing the bill.

"The urgency is clear," Pelosi told her colleagues in a speech on the House floor. "We hear it from our friends, from our neighbors . . . In my own state of California, officials - including the governor - are urgently calling for federal legislation to avoid economic catastrophe. Those urgent calls are being echoed by Democratic and Republican governors from across the country."

The core of the Bush administration's bailout plan remains similar to the version defeated in the House. Treasury Secretary Henry Paulson is granted authority to purchase up to $700 billion in troubled mortgage-backed securities from debt-riddled Wall Street firms, a move designed to free up the credit markets. Under the plan, Paulson and his successor can immediately use $250 billion to start cleaning up the mess, with $100 billion more in reserve, but only if the current and future president certifies to Congress that it is necessary. Lawmakers also have reserved the right to block the remaining $350 billion if the Treasury can't justify it. The bill also caps salaries on corporate executives whose companies take federal bailout money, creates a board to oversee the bailout and requires any profits from the program to go into federal coffers. The government could profit if the troubled securities it buys eventually rise in value.

When the initial bill was defeated, about two-thirds of Republicans voted against it, while a majority of Democrats were in favor. Fifty-eight members - 33 Democrats and 25 Republicans - switched their votes from "no" to "yes."

Representative Jim McDermott, Democrat of Washington, voted for the measure Monday but voted against it yesterday, citing his objection to the Senate earmarks as well as language that changed complex Securities and Exchange Commission accounting rules that can undermine corporate balance sheets. "When Republicans force a bill that ignores the plight of Americans, but includes so-called sweeteners, that is not worthy of support," McDermott said in a statement.

But many legislators said they got an earful from their constituents during the week, including small-business owners who can't get credit and homeowners facing foreclosure. That helped shift the emphasis of the debate from rescuing well-heeled but reckless Wall Street firms to helping everyday taxpayers.

Representative Zach Wamp, Republican of Tennessee, who voted no on Monday, said a hike in federal deposit insurance limits helped change his mind, but ultimately "the costs of inaction are greater than the costs of this bill."

Representative Mike Thompson, Democrat of California, said he switched his vote to support the bill in order to help the economy. He would not say whether the insertion of a measure to give tax breaks for auto racing tracks, which he had previously tried to get passed, played a role in his decision. One such race track is in Thompson's district. The addition of such sweeteners was criticized by some who said the bailout bill was being loaded with wasteful earmarks.

"This was the right vote for the American people today," Thompson said in an interview. "It's not everything I wanted but I think it is the best we could get."

Tierney said he did so though he still has "strong and serious concerns" about the bill.

"I am aware that there is no guarantee this will work, and that, regardless, we can expect financial conditions to continue to worsen for a while," Tierney said in a statement posted on his website.