Washington – The tide is shifting over prospects in Congress for an epic $700 billion financial rescue package.
The reason: Voter anger over a “bailout” for Wall Street, which nearly shut down switchboards on Capitol Hill last week, is being eclipsed by new evidence that the credit crisis is hitting Main Street – and is on track to get worse.
“I got a call yesterday from a car dealer in Las Vegas saying, ‘I can’t buy any more cars.’… If somebody buys a car, most of them can’t get a loan,” said Senate majority leader Harry Reid on Wednesday.
The stunning defeat of the financial rescue plan in the House on Monday sent the stock market plunging and prompted renewed efforts on both sides of the aisle to find a compromise. At the same time, business groups stepped up an all-out offensive to muscle a bill across the line this week.
“The pain on Main Street is real. It’s being felt,” says Bruce Josten, chief lobbyist for the US Chamber of Commerce, which has been mobilizing local chambers across the country to weigh in on this vote.
“It’s been a 24/7 exercise in improvisation. There’s no playbook for a crisis like this,” he adds. “Members are beginning to realize that, despite ideological reactions, they’d better do something.”
In a bid to move a bill to President Bush’s desk by end of week, the Senate opted to vote on a compromise bill Wednesday evening. The new deal adds a package of tax breaks for business, as well as an increase in the government’s $100,000 cap on insuring bank deposits.
“We will have demonstrated to the American people that we could deal with the crisis in the most difficult of times, right before an election, when the tendency to be the most partisan is the greatest,” said Senate Republican leader Mitch McConnell, who predicted that the revised plan would pass.
Meanwhile, House members across the political spectrum have been scrambling to add their own elements to a plan that many see as one that must pass this week.
It’s creating some odd ideological matchups. House progressives, on the left of the Democratic Party, announced on Tuesday that they are working with conservative Republicans on low-cost or no-cost alternatives to relieve credit markets. Such alternatives would have less risk to taxpayers than the $700 billion “bailout.”
“That’s a common theme among members both who voted for the bill and who voted against the bill: Don’t put the taxpayers at risk,” said Rep. Peter DeFazio (D) of Oregon, a member of the Congressional Progressive Caucus, at a briefing Tuesday.
The progressive caucus proposal includes rule changes in the Securities and Exchange Commission aimed at increasing liquidity, such as requiring the SEC to suspend fair-value accounting standards. (This so-called mark-to-market rule forces financial institutions to mark assets to the market value, even if that means dropping still-performing assets, such as some mortgage-backed securities, to zero.)
It’s a policy change also endorsed by many House Republicans. And in an independent move, the SEC on Tuesday posted clarifications that ease that rule.
GOP presidential nominee John McCain and Democratic nominee Barack Obama, who both spoke with Mr. Bush on Tuesday, urged Congress to add a provision increasing insurance coverage from the Federal Deposit Insurance Corp. (FDIC).
With two-thirds of the House Republican caucus on record opposing the Bush administration’s plan, the focus is on Senator McCain to help flip enough GOP votes in the House to pass a bill this week. “It took Congress awhile, and there were costs to these delays. But they have awakened to the danger. And today, with the unity that this crisis demands, Congress will once again work to restore confidence and stability to the American economy,” McCain said in a speech on the economy in Independence, Mo., on Wednesday morning.
Meanwhile, regulatory agencies such as the SEC and FDIC are giving a nod to reform proposals on Capitol Hill. This week, FDIC Chairman Sheila Bair said she would seek a temporary increase in the deposit insurance limit.
“The SEC came out [Tuesday] with a clarification on fair-value accounting that would focus on the economic value of the assets. It looks like the SEC is finally moving on this,” says Melissa Netram, director of regulatory affairs at the Financial Services Roundtable, an industry-sponsored consortium in Washington.
“But since Congress didn’t pass the [rescue] legislation on Monday, the credit markets, not just the stock markets, suffered. This hasn’t been clear to the American public,” she adds. “The plan isn’t just for Wall Street, but also for Main Street.”
But lawmakers say the message from business groups suffering from a credit freeze is being heard, along with voters still angry over what they see as an undeserved, taxpayer bailout of Wall Street.
“At the grass-roots level, people are still largely opposed to this, but I talked to CEOs of healthcare organizations, business leaders, auto dealers, all of whom say that this credit crisis is real,” says Sen. John Thune (R) of South Dakota. “They believe that steps need to be taken to ensure that we don’t have a crisis that limits credit to those businesses that operate on credit.”
“This is going to happen,” says lobbyist Josten. “The last House vote was a ‘conscience vote’ that wasn’t whipped on either side. But the credit crisis is now so great that some local businesses aren’t making payrolls. Congress can’t afford not to act.”