WASHINGTON - After two weeks of anguishing debate, Congress has passed and President Bush signed a massive plan to save the financial industry and the economy at large from an unthinkable free fall. Now, the world holds its breath, seeing if it will work.
Passage of the $700 billion financial rescue package came after Treasury Secretary Henry Paulson at a meeting last month shocked congressional leaders into action by warning of pending economic collapse without immediate congressional intervention.
Paulson said after the climactic House vote Friday that he already had staff working out details and was lining up advisers from outside the government to get the money flowing.
The immediate response to the 263-171 vote was not promising. Wall Street, which plunged a record 778 points after the House initially rejected the bill last Monday, fell 157 points on Friday as more economic bad news, such as a jump in job losses, outweighed news that Congress was finally coming to the rescue.
Still, Bush and Congress made clear that the legislation was urgent and vital. "We have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country," Bush said after the House vote. He acknowledged that "our economy continues to face serious challenges."
"We know that if we do nothing this crisis is likely to worsen and put us in a slump the likes of which most of us have never seen," said House Republican leader John Boehner, R-Ohio, who worked with House and Senate Republican and Democratic leaders in a rare bipartisan response to what both parties saw as a dire threat to the nation's economic well-being.
"We are addressing the real pain felt by Mr. and Mrs. Jones on Main Street," House Speaker Nancy Pelosi, D-Calif., said. "They are why we must pass this legislation today."
The legislation gives the government broad authority to buy up toxic mortgage-related investments and other distressed assets from shaky financial institutions. The hope is that it will restore confidence in markets and thaw a near-freeze in credit availability that has begun to affect the ability of community banks to loan, businesses to obtain money for payrolls and investments and individuals from getting credit to buy a home or a car.
The measure, in another effort to help smaller banks with serious liquidity problems, also raised the ceiling on federally insured deposits from $100,000 to $250,000. It increases federal oversight over Wall Street transactions and assures that CEOs whose companies benefit from the bailout don't leave with huge golden parachute payoffs.
Rep. Barney Frank, D-Mass., the Financial Services Committee chairman and a key negotiator over the past weeks, said the measure was just the beginning of a much larger task Congress will tackle next year: overhauling housing policy and financial regulation in a legislative effort comparable to the New Deal.
The political story preceding the House vote Friday was nearly as dramatic as the financial and economic upheavals going on outside Washington.
Last Monday, despite urgent pleas from Bush and his senior financial advisers and the support of congressional leaders, the House voted 228-205 to reject the rescue plan. Stock markets around the world plunged, then recovered to some extent, as economists warned that not since the Great Depression had the United States faced such a crisis.
But the 95 Democrats and 133 Republicans who voted against the bill were responding to a deluge of calls and messages from their constituents demanding that they defeat what many saw as a $700 billion giveaway to Wall Street when average Americans were getting no help.
On Wednesday, the Senate, shortly before it recessed for the election, stepped in, voting 74-25 for a package that linked the rescue bill to a giant bill extending popular tax breaks such as the research-and-development tax credit, providing incentives for renewable energy resources and giving tax relief to disaster victims. That bill, costing an additional $110 billion, included a measure to give benefits parity to people with mental health problems. The Senate also added the boost in the ceiling for bank deposits.
Those additions were enough to sway some House members who voted "no" the first time around. Others were swamped by calls from business and political leaders warning of the possible consequences of inaction.
"I've never talked to as many bank presidents in my life," said Rep. Joe Knollenberg, R-Mich., who said he had also been lobbied by General Motors CEO Rick Wagoner and other auto executives.
California Gov. Arnold Schwarzenegger sent out a letter warning that, absent a clear resolution to the financial crisis, California and other states "may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal Treasury for short-term financing."
The two presidential candidates also weighed in. Democrat Barack Obama spoke to many in the Congressional Black Caucus and helped persuade 13 to switch their votes. Nine freshmen Democrats also switched to "yes" votes after a conference call with Obama in which he promised an economic stimulus bill would be a top priority if he is elected.
Republican John McCain also lobbied for the measure, according to aides who declined to release a list of lawmakers he called.
"It's disgusting that we would ever be brought to this floor to cast this vote," said Rep. Zach Wamp of Tennessee, a Republican who changed to a "yes" vote. But "Congress has to act. We are out of options. Hold your hand over your heart and vote 'yes.'"
Not all were convinced. "The Treasury plan throws an ungodly amount at Wall Street," said Rep. Marcy Kaptur, D-Ohio. "This is just an end run around, right before an election. Pray for our republic."
In the end, 33 Democrats and 25 Republicans switched from opposition to support. In all, 91 Republicans joined 172 Democrats to support the measure while 108 Republicans and 63 Democrats voted 'no."