The Senate passed its version of a mammoth plan to rescue the financial services industry Wednesday night, saying changes designed to protect individual investors and small business owners could be enough to persuade reluctant House members to go along with the plan.
Senators agreed to the plan 74-25 as an amendment to an unrelated bill, which was passed shortly thereafter.
Treasury Secretary Henry Paulson, who put together the original scheme to bail out the banks after Lehman Bros. and other financial institutions collapsed on Wall Street last month, welcomed the “strong bipartisan vote.”
“This sends a positive signal that we stand ready to protect the U.S. economy by making sure that Americans have access to the credit that is needed to create jobs and keep businesses going,” Paulson said in a statement. “I urge the House to act promptly to pass this bill.”
The House was always the intended audience for Wednesday’s action in the Senate, which loaded the rescue plan with tax breaks and other sweeteners for the right and the left to secure approval in the House by Friday.
House members rejected the original plan Monday, sending financial markets plunging around the globe, but it did not cause the same uproar in the Senate, where both parties’ presidential candidates voted for it.
“We are all going to need to sacrifice,” Democratic nominee Barack Obama of Illinois said in a floor speech. “We’re all going to need to pull our weight, because now more than ever we are all in this together. That is part of what this crisis has taught us.”
At a campaign rally Wednesday afternoon in Independence, Mo., Republican nominee John McCain of Arizona told supporters, “If we fail to act, the gears of our economy will grind to a halt.”
President Bush praised the Senate for passing the package, calling the bill “essential to the financial security of every American.”
By voting on its own rescue package, the Senate snatched the initiative from the House, which under the Constitution normally acts first on large spending bills. Officials on Capitol Hill told NBC News that Senate Majority Leader Harry Reid (D-Nev.) was able to exploit a procedural provision to jump the line, seeking to put pressure on House members to get on board.
“There are a few people in the House who’d rather we did this another way,” . “But we’ve tried other ways. I say to my friends in the House of Representatives, we’ve got to get this done.”
Minority Leader Mitch McConnell, (R-Ky.) endorsed Reid’s unusual power play against House Speaker Nancy Pelosi, D-Calif., and Majority Leader Steny Hoyer, D-Md., saying, “I think a good vote coming out of the Senate will certainly be helpful over on the House side.”
House Democrats were not happy with the turn of events, but Hoyer predicted in an interview on NBC’s TODAY that the revised bill would make it through the House.
Democrats said they would likely — but only if they were confident that their Republican counterparts could deliver enough votes to ensure passage.
“I hope leaders on the Democratic side will try to figure out how to get some of the Democrats to come around,” said Rep. Brad Miller, D-N.C. “I think they will come around. The problem is trusting the Republicans.”
The Senate package would add $100 billion in tax breaks for businesses and the middle class while temporarily raising the Federal Deposit Insurance Corp.’s cap on coverage of bank deposits from $100,000 to $250,000. There were indications Wednesday that those changes could swing some opponents over, said Sen. Chris Dodd, D-Conn., chairman of the Banking Committee.
“A number of people who voted ‘no’ ... are having serious second thoughts about it,” Dodd said.
The increase in FDIC insurance made the difference for Rep. Rodney Alexander, R-La., who voted against the bill Monday but said he would back the Senate version.
“That will ease a problem that has existed at the community bank level for several years,” Alexander said.
Rep. John Shadegg, R-Ariz., also said he would switch his vote to “yes” because of the higher FDIC cap, while Rep. Todd Tiahrt, R-Kan., said he was likely to switch “if it has good enough reforms in it that will change the marketplace.”
The higher FDIC cap was just one of many additions the Senate made to the House version of the bill in a transparent attempt to switch at least 12 “no” votes in the House.
Also dropped in were $100 billion in tax breaks for businesses and the middle class, including mechanisms to keep the alternative minimum tax from hitting 20 million middle-income Americans and to provide $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana.
The bill does not specify spending cuts to offset the alternative minimum tax and disaster provisions. A similar failure to offset many of the tax cuts angered the House’s band of conservative “Blue Dog” Democrats, half of whom voted against it.
Altogether, the additions would swell the projected coat of the bailout from $700 billion to more than $800 billion, a frightening number to swallow for House members in tight re-election battles.
But the heart of the bill, and the opposition to it, remained the same. It would enable the government to spend billions of dollars to buy bad mortgage-related securities and other devalued assets held by troubled financial institutions. If successful, advocates say, that would allow frozen credit to begin flowing again and keep the economy from a deep recession.
Proponents say the government eventually could sell the devalued assets at a better price, reducing the program’s final cost.
Wall Street watched the debate with a skeptical eye. , finishing down 19.59 points, with many investors reluctant to make major moves before the Senate vote.
With Chris Clackum, Steve Handelsman, Brian Mooar, Ken Strickland and Mike Viqueira of NBC News. NBC affiliates KALB of Alexandria, La., KSNW of Wichita, Kan., and WNCN of Raleigh, N.C.