$700 billion Bailout Bill Approved by Congress

October 8th, 2008

The House of Representatives of the United States Congress approved the revised $700 billion Wall Street bailout on Friday by a 263-171 vote, putting into motion the biggest government intervention in the financial system since the Great Depression of 1929. The House’s vote followed the Senate’s approval on Wednesday.

Bush Signs Bill at Oval Office

The original bill, rejected four days before, sent the Dow Jones Industrial Average to an historic 777-point drop. President Bush quickly signed the bill at his desk at the Oval office and Treasury Department officials vowed to move swiftly to use the sweeping new powers to try to stabilize financial markets and ease deepening fears about the economy.

Before the House vote, members of Congress were deluged with calls and e-mails from constituents opposed to the rescue plan, but Monday’s brutal market plunge was met with public outrage and led to four days of heavy lobbying for the proposal. In order to ensure its passage, Senate leaders added tax breaks and other sweeteners to the measure and it was passed there on Wednesday. On Friday, the bill won 58 new “yes” votes in the House, thereby clinching its approval. Both presidential candidates, Democratic Sen. Barack Obama and Republican Sen. John McCain, participated in a broad-based effort to lobby lawmakers, joined by outside groups and local government officials across the country.
“We have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country,” Bush said.

Markets Decline Despite Bail-out

Despite the move, the markets declined on Friday, a reflection of broader economic uncertainty and worries about a government report indicting that unemployment rose sharply in September.

The 451-page Emergency Economic Stabilization Act grants the Treasury Secretary unprecedented authority to buy up to $700 billion of troubled assets from failing financial institutions in an effort to stave off more bankruptcies and provide cash for new loans to ease the credit market freeze-up. The bailout plan divided members of the same party, many admitting that they objected to the bill but simply had no choice but to vote for its approval.

Lawmakers demanded numerous changes to the Treasury Department’s 3-page proposal, including limits on how much executives may be paid if their firms sell assets to the government. Congress also raised the cap on Federal Deposit Insurance Corp account coverage from $100,000 to $250,000, required provisions to help homeowners avoid foreclosure and added an oversight board to supervise the program.

In fact, the financial industry will now faces greater congressional scrutiny in the months to come.  Previously obscure corners of the industry now subject to few rules governing complex derivatives and hedge funds, for example, could face federal supervision for the first time. At the same time, heavily regulated sectors, such as banking and insurance, are likely to face even greater oversight. Hearings to begin next week will focus on the causes and effects of the Lehman Brothers’ bankruptcy and the $85 billion bailout of the giant insurer, AIG, and
will examine the failures of current regulations.

After the Congressional session, lawmakers headed home to start their fall campaigns. Tougher regulations will have to wait till next year. Rep. Barney Frank, chairman of the House Financial Services Committee said lawmakers will have to “do some serious surgery on the financial structure.”

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Entry Filed under: Stock Market News