Senate Passes $700 Billion Financial Rescue by Overwhelming Margin

Congressional Oversight, Economy-US, Mortgage & Credit Crisis, Politics-US, Vote 2008

2 October 2008 :: Denver Lessing

Senators Biden, Obama, McCain vote with majority (74 to 25) to support the financial rescue bill, including a raft of tax incentives aimed at creating economic stimulus, putting money in hands of non-banking interests. The Senate’s version of the rescue package includes tax credits for wind and solar power, “greening” the recovery plan so that individual Americans can begin to take action that will make the energy economy more sustainable and give leverage to those budding industries. Importantly, the bill also raises the FDIC cap for individual accounts to $250,000, from $100,000.

The plan creates a committee that will oversee the application of the buyout money to specific purchases. The vast majority of the money will be spent buying up “toxic assets”, meaning debts held by at-risk banks, at crisis-rate prices, then resell those assets so that private interests will be able to sustain those debts and leverage them to make some money in the tighter credit environment. If properly applied, the plan will allow the government to make a profit on these assets, over time, and may, in a best-case scenario, allow struggling banks to begin making loans again.

Sen. Barack Obama (D-IL), the Democratic nominee for president, had suggested increasing the FDIC limit to $250,000 in a speech on Tuesday morning, after the FDIC chair had begun floating the idea among members of Congress that she would request a temporary increase in the amoung of deposit insurance the FDIC could provide to help prevent a run on deposit accounts. Sen. John McCain (R-AZ), the Republican nominee, voiced his support for the $250,000 limit later on Tuesday. By Wednesday morning, the move had been included in the “sweetened” Senate version of the $700 billion financial rescue plan.

The fact that the presidential candidates were looking at a good idea that emerged from perhaps the most vital agency involved in shoring up the US banking system against panic and/or collapse, the FDIC, and that a necessary step to helping to guarantee the solvency of individual middle-class Americans and small-businesses, is an encouraging sign. It demonstrates a careful balance having been struck between taking a leadership role and artfully keeping presidential politics to the sidelines during the intense Congressional negotiations. Obama approached McCain on the floor of the Senate and the two shook hands, showing a cordial cooperative relationship.

Analysts have now begun parsing the specifics of the “sweeteners” added to the legislation, which include what are called “tax extenders”, giving relief to specific industries or interests on a temporary basis, ostensibly to help encourage certain members to see the bill as a help in hard times to specific constituencies. The relief includes not only the renewable energy incentives and the FDIC limit-increase, but also reportedly $192 million for the rum industry in Puerto Rico and the Virgin Islands, $128 million for auto-racing interests, as well as incentives for wool research.

Speculation is now mounting that such items may make it more difficult to pass the legislation in the House of Representatives, where conservative Republicans say they oppose such massive increases in federal spending. The bill’s supporters say these add-ons were put in to convince Republican members to support the legislation, and that the money destined for financial rescue efforts is not new spending, but an investment, which will generate returns, perhaps even profits and that opposition in the House rests on a failure to understand or communicate this point effectively.