Congress bows to the inevitable and passes $700bn bill
Financial sweeteners help waverers to back the bailout deal the second time around
Saturday 04 October 2008
The United States approved the most expensive government intervention in history yesterday when George Bush signed into law a $700bn (£380bn) rescue package for the financial system that Congress had approved by a wide margin.
Not since the Great Depression has Washington acted in such a drastic fashion to bail out the financial markets and avert economic catastrophe for millions of Americans. The infusion of government money is needed to unlock frozen credit markets and reverse last week's rejection by Congress that sent global stock markets tumbling and threatened to plunge the economy into severe recession. The money will be used to buy up so called "toxic" mortgages which have crippled banks across the country.
There was a mixed response to the historic vote in the markets as a devastating new report revealed a slowing economy with the greatest job losses in nearly six years. There are widespread concerns that the rescue plan may not be enough to pull the US economy out of its stall.
After a week of high drama the latest rescue measure was passed by 263 votes to 171 to applause and cheers in the House. Within minutes the bill had been signed by a euphoric Speaker of the House, Nancy Pelosi, and then hurried the short distance to the White House for the President's signature before the stock markets closed.
"These steps represent decisive action to ease the credit crunch that is now threatening our economy," President Bush said after the vote.
John Boehner, Republican minority leader, warned fellow members of Congress: "If we do nothing, this crisis is likely to worsen and to put us into an economic slump like most of us have never seen." A rebellion by Republicans caused the first bill to collapse five days ago. US law-makers watched in horror as Wall Street experienced an unprecedented plunge of 700 points. The measures to bail out failed financial institutions are deeply unpopular with ordinary Americans but the threat of total financial meltdown soon brought members of Congress around to favour a new bill which the Senate approved on Thursday.
The inclusion of tens of billions of dollars in subsidies for pet projects in their home constituencies helped.
The White House and Congressional leaders resorted to old-fashioned methods to nudge the bill into law, bribing, bullying and flattering members of both parties. US stocks rose in anticipation of the plan being approved.
Many Republicans switched their votes after hearing from President Bush earlier in the day, the White House spokesman Tony Fratto said.
The Treasury Secretary, Henry Paulson, said that no time would be lost in putting the rescue plan into motion. He described the passage of the bill as "a vote to protect the American people – and their jobs".
Since many of the politicians who rejected the bill the first time, are in fear being thrown out of office on 4 November the package was festooned with "pork barrel" measures – financial bribes – to help their congressional districts and encourage a "yes" vote. In a week, the bill grew to a phonebook-sized 450 pages as $150bn in handouts were tacked on to make it more palatable.
Among the "sweeteners" were tax breaks for commuting cyclists and help for the world's biggest manufacturer of arrows that would make them cheaper for boy scouts to buy. Only so-called "kiddie arrows" will benefit, Congress was assured. Big game hunters who buy "grizzly broadheads" and other fancy arrows would still be taxed.
And the bribery didn't stop there. Among the hundreds of pages of tax breaks there are provisions to help film and television production companies as well as renewable energy firms, all of which will add to the administration's burgeoning spending deficit.
Measures which congressmen have been nursing for years, including giving equal treatment to mental and physical ailments were also included. Jim Ramstad, a Republican from Minnesota, switched his vote in favour of the bill because his personal crusade of more than a decade of winning "mental health parity" had finally seen the light of day. "The revised bill is a recovery bill for the economy and a recovery bill for millions of Americans suffering from the ravages of mental illness and addiction," Mr Ramstad said.
His fellow Republican, Zach Wamp of Tennessee, switched his vote because of the precariousness of the economy. "The time has come to act," he said. "If we do not, it will be an ugly day in America."
The "pork-barrel" measures caused problems with the self-described "Blue Dogs" on Capitol Hill. These Democrats are determined to cut down the massive government deficits and they resented being asked to approve bribes.
Barack Obama appealed to the Blue Dogs to support the bill and many intended to do so. But many congressmen were having to balance the costs of an economic meltdown against the abandonment of fiscal discipline.
The House majority leader, Steny Hoyer, who is a leading Blue Dog, reluctantly signed on. Not all were convinced even by a personal phone call from the Democratic frontrunner. "I don't believe this bill is the right medicine to cure the disease," said Jim Matheson, a Utah Democrat who co-chairs the Blue Dogs.
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