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Senate Easily Clears Financial System Rescue Package

00:00AM Oct 02, 2008

via a special arrangement with Informa Economics, Inc.

House expected to vote Friday on revised plan

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

The Senate on Wednesday evening approved, 74-25, a financial system rescue package (HR 1424), along with tax incentives and other changes to a bill House leaders hope will clear that chamber when it votes, likely on Friday.

Core of Treasury Secretary Paulson plan in new measure. The measure’s core provisions, which would authorize the Treasury to buy up to $700 billion in troubled assets of financial institutions, are essentially unchanged from the version defeated in the House on Monday, 205-228.

The major difference in the new package is is an expansion, through 2009, of Federal Deposit Insurance Corporation (FDIC) protection for bank accounts. The bill would temporarily increase insurance coverage to $250,000 per account from $100,000, a move designed to help small businesses and community banks in particular.

The bill also would give the FDIC unlimited borrowing access to Treasury funds through the end of next year. The FDIC now has $45 billion in funds backing $4.5 trillion in deposits.

A controversial inclusion to the new Senate measure was the tax-extenders package (HR 6049), which is only partially offset with revenue raisers, unlike the House Democrats’ approach, which would require full offsets for all but disaster tax relief and a patch to keep the alternative minimum tax (AMT) from hitting millions more Americans -- the Senate bill contains $150.6 billion in tax breaks and $43.5 billion in offsets.

The Senate’s tax bill would provide incentives for renewable energy production and conservation, “patch” the alternative minimum tax (AMT) for 2008, extend expiring tax incentives through 2009 and help victims of natural disasters. It is partially offset with revenue increases that would impact the oil and gas industry and hedge-fund managers.

The tax provisions would add $110.4 billion to the deficit over the next 10 years, according to the Joint Committee on Taxation, on top of the underlying cost of the rescue package.

The modified bill also includes language to give the Securities and Exchange Commission (SEC) the authority to suspend mark to market accounting rules if the agency determines that such action is in the public interest and protects investors.

The bill also calls for the SEC in consultation with the Federal Reserve and the Treasury Department to conduct a study looking into whether fair market accounting rules contributed to the credit crisis.

The revised Senate package includes a one-year extension of an existing $1,000 tax deduction for homeowners who do not itemize.

As for timing of the House vote, House Majority Leader Steny Hoyer (D-Md.) indicated that if enough members indicate their support for the bill, the House vote could be moved up to Thursday night. But doing that would require adopting a same-day rule in the House, which requires a two-thirds vote of approval. Still, the current plan calls for a vote Friday in the late morning or early afternoon.

The focus in the House will be convincing enough Republicans to switch their previous no vote to yes, and maintaining the number of Democrats who voted for the previous package on Monday. Of 235 Democrats, 140 supported Monday's bill. Of 199 Republicans, 65 voted for it.

In a Fox News interview Wednesday, Minority Leader John Boehner (R-Ohio) praised changes made in the package, and said that the Senate package “has a much better chance than we had on Monday.”

A look at the voting pattern in the Senate. Sens. Norm Coleman (R-Minn.) and Gordon Smith (R-Ore.), both in tough re-election fights, backed the measure, while Sens. Mary Landrieu (D-La.) and Elizabeth Dole (R-N.C.), also in close races, voted against it.

Others voting against the bill were Sens. Wayne Allard (R-Colo.), John Barrasso (R-Wyo.), Sam Brownback (R-Kan.), Jim Bunning (R-Ky.), Maria Cantwell (D-Wash.), Thad Cochran (R-Miss.), Mike Crapo (R-Idaho), Jim DeMint (R-S.C.), Byron Dorgan (D-N.D.), Mike Enzi (R-Wyo.), Russ Feingold (D-Wis.), James Inhofe (R-Okla.), Tim Johnson (D-S.D.), Bill Nelson (D-Fla.), Pat Roberts (R-Kan.), Bernie Sanders (I-Vt.), Jeff Sessions (R-Ala.), Richard Shelby (R-Ala.), Debbie Stabenow (D-Mich.), Jon Tester (D-Mont.), Roger Wicker (R-Miss.) and Ron Wyden (D-Ore.).

Sen. Edward Kennedy (D-Mass.), who is undergoing treatment for cancer, did not vote.

The two presidential candidates, Sens. John McCain (R-Ariz.) and Barack Obama (D-Ill.), both returned from the campaign trail to vote for the bill, as did Democratic vice presidential nominee Sen. Joseph Biden (D-Del.).

Hearings ahead. The Senate Banking, Housing and Urban Affairs Committee, possibly alongside several other committees, are expected to begin hearings over the next couple of months to monitor the application of this bill, to look at how the economy reached the breaking point and to examine the architecture of financial regulation, Banking Chairman Chris Dodd (D-Conn.) said.

Comments: Veteran congressional contacts are skittish about giving a House vote prediction after Monday's stunning House rejection of the rescue package. However, a growing number of other observers suggest both Democratic and Republican and Bush administration officials are "whipping" the revised package considerably more than Monday's failed attempt at passage.

Bottom line: Some way, some how the rescue package will be approved by the House -- most likely in its coming vote.

Meanwhile, Senate Majority Leader Harry Reid (D-Nev.) said on Wednesday evening that the Senate will return for a post-election, lame-duck session in mid-November to pass land bills. Reid said the Senate would be in session for "several days" the week of Nov. 17 when it returns for organizational meetings for the new, 111th Congress. "The one thing we are going to move to is a lands package," he said. While providing no details on what bills would be impacted, Reid said Senate Energy and Natural Resources Chairman Jeff Bingaman (D-N.M.) and Sen. Ken Salazar (D-Colo.) would be putting the package together.

House Democratic leaders have not announced their post-election agenda, but if they follow the Senate's action for a lame-duck session, there is still a chance that some lingering Free Trade Agreements (especially those with Panama and Colombia) could be considered.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.