In a 263-171 vote, the U.S. House of Representative today approved a massive spending plan — voted down in an earlier form Monday — that will supply hundreds of billions of dollars in a federal effort to ease the credit squeeze by buying up bad assets from financial companies.
President Bush signed the legislation shortly after the vote.
After the initial $700 billion measure failed in a 205-228 House vote on Monday, the Senate wrapped in some tax cuts and business benefits that could bring the total cost of the legislation to about $850 billion. Some members of Congress referred to the additions as "sweeteners" intended to win over votes from those who initially opposed the spending plan.
A majority of House Republicans opposed both the original and updated versions of the bill. House Republicans voted 65-133 against the original bill and voted 91-108 against the version with the Senate additions.
Meanwhile, House Democrats voted 140-95 to pass the original measure, and 172-63 to pass the revised measure. The Senate had approved the bill in a 74-25 vote.
The legislation drew some very vocal criticism in a congressional hearing leading up to the vote. Several legislators who ultimately voted in favor of the bill said that the bill was not the best choice — or even a good choice — but it was a product of compromise and not acting could prove disastrous.
Proponents of the measure noted that the plan to take bad loans and other so-called "toxic" assets off of financial firms’ books to stimulate more liquidity in the credit market could actually prove profitable as the government sells off those assets over time.
And if it is not, the plan provides a recoupment provision so that the government can submit a legislative proposal to recoup "from the financial industry an amount equal to the shortfall in order to ensure that the (program) does not add to the deficit or national debt."
While some opponents of the bill charged that it doesn’t do enough for homeowners, Rep. Maxine Waters, D-Calif., who serves as chairwoman of the House Subcommittee on Housing and Community Opportunity, said the bill does provide support for loan modifications for those who are struggling to make mortgage payments.
The bill will assist in writing down the principal or writing down the interest rates on loans for borrowers, she said, noting that the government will have more authority in modifying loans than it does now in encouraging industry to participate in workouts with borrowers.
"When we buy up these nonconforming loans (from financial companies), we own them. For everybody who says there’s nothing in there for homeowners, they’re incorrect. Read the bill — they’re in there," Waters said.
Rep. Ron Paul, R-Texas, who had been a candidate in the presidential election, said he opposed the federal plan and believes the economic problems are "a lot more serious" than a credit crunch. "What’s happening in markets today is signaling something much more draconian," he said, with risk of economic insolvency.
While the legislation offers "more appropriations, more spending, more debt and more credit in the market," Paul said he believes those are the very elements that caused the current economic problems.
"The message now is: You can’t paper it over any longer, so the recession and/or depression will come. By doing more mischief — not allowing markets to adjust — you’re going to guarantee a depression. It’s going to be (more) prolonged than if you allow markets to adjust. Let it react. This idea that there’s not enough regulation is completely wrong," he said.
The extent of the credit crisis is already reaching taxpayers across the country, proponents of the legislation argued. Rep. Dan Lungren, R-Calif., noted that California Gov. Arnold Schwarzenegger wrote a letter to U.S. Treasury Secretary Henry Paulson seeking an emergency $7 billion loan because of shrinking credit.
"I can’t recall when that happened before," Lungren said. "And the reason is the squeeze on the credit market. When we see volatility in the market and uncertainty … that spreads fear. I don’t argue that it’s the perfect bill, but it’s the best we have right now." California Treasurer Bill Lockyer had warned this week that the state’s cash reserves could be tapped out by the end of this month "without prompt federal action to address the economic crisis."
Rep. Barbara Lee, D-Calif., who initially opposed the legislation, said she does not believe the bill will "magically turn the economy around or end this recession we’re in now, but I must err on the side of caution" in voting for the bill.
"I hope that we’ll be able to prevent this financial crisis from exacting a bigger toll," she said, adding that the bill is "flawed but necessary." While other members of Congress avoided the "B" word, Lee did call the federal effort a "bailout," blaming the current state of the financial markets on "reckless deregulation policies and greed."
Rep. Ginny Brown-Waite, R-Fla., said the Senate-added changes to the bill did not sweeten the deal for her. "The added sweeteners and earmarks were only to get more votes," she said, adding that the bill was largely unchanged except for the addition of $150 billion in spending.
"Do you feel like a herd of bulls and bears is rushing at you? They are," said Rep. Marcy Kaptur, D-Ohio, who added that the bill "won’t solve the credit crunch nor the mortgage foreclosure challenge." She said that the amount of money included in the bill "throws and ungodly amount at Wall Street."
Rep. Barney Frank, D-Mass., who is chairman of the House Financial Services Committee, said that Congress will certainly address the problems in the financial markets with more discussions in its upcoming session.
"We will be back next year to do some serious surgery on the financial structure. This is step one. Step two is to do the serious work to prevent this from recurring," he said.
The Senate-added changes to the bill include a rise in deposit insurance limits by the Federal Deposit Insurance Co. and National Credit Union Share Insurance Fund from $100,000 per account to $250,000 per account through Dec. 31, 2009 — this change is intended to provide more confidence in the banking system.
The Senate amendments also added a range of other tax breaks — some of which were singled out during the congressional hearing today.
There are provisions in the legislation relating to the child tax credit, film and television productions, excise taxes for "certain wooden arrows designed for use by children," payments received in connection with the Exxon Valdez oil spill litigation, and racetrack owner tax benefits, among others.
A Chicago Tribune article notes that the legislation will also extend an exemption that will allow about 20 million taxpayers to avoid paying the Alternative Minimum Tax this year — a savings to taxpayers of about $62 billion.
In a statement issued just after the vote today, National Association of Realtors President Richard F. Gaylord said the legislation "is critical to stopping the economic turmoil that millions of American’s are facing. Today’s action will go a long way toward ending the current economic crisis crippling the housing and financial markets."
Gaylord added that the legislation "would quickly restore liquidity to the mortgage market, which would stabilize the housing market and protect homeowners. Mortgages as well as personal and small business loans would become more available and less costly."
Sandy Dunn, chairman of the National Association of Home Builders, said the legislation is "absolutely essential to prevent a collapse in our financial system that would have inflicted devastating damage to our nation’s economy. Hopefully, this will set the stage for rebuilding confidence, restoring the availability of credit for businesses and consumers, and reversing the downward spiral in home prices and rising foreclosures that are root causes of today’s financial turmoil."
The Mortgage Bankers Association also released a statement today in support of the bill’s passage. "The ongoing credit crunch has severely impacted the ability of individuals and businesses of all sizes to borrow, and has threatened to slowdown the entire economy," stated John A. Courson, chief operating officer for the group. "This (bill) will enable financial institutions to offer credit so individuals can purchase homes and other items, and businesses can continue to operate and grow."
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