WASHINGTON – Senate leaders reached consensus late Tuesday on a revised $700 billion financial rescue plan that they hope will clear the chamber in a vote today and ward off another upheaval in global markets that could threaten economies here and abroad.
The presidential candidates, Sens. John McCain, R-Ariz., and Barack Obama, D-Ill., along with Obama’s running mate, Sen. Joe Biden, D-Del., were expected to fly here for the vote.
Spurred by banking regulators, the Senate bill includes a big increase in the limit on federally insured deposits to $250,000 from the current $100,000 cap. The bill also includes popular tax relief measures. An effort is under way to add some accounting relief for companies that have to revalue mortgage-related holdings.
Leaders expect the Senate to vote this evening and the House, which dealt a crushing blow Monday to bailout hopes by defeating the bill, to take up the issue as early as Thursday.
“I don’t think you’re going to see a lot of change in the bill we put up,” a member of the Democratic leadership said, speaking on condition of anonymity because of the delicacy of the negotiations.
“We’ll make tweaks both for Republicans and Democrats, but we’ll probably have on the floor a bill that doesn’t look very different,” the official said.
The new version also would likely include stronger protections for homeowners facing foreclosure and possibly language sought by Republicans to discourage excessive government intervention in markets, the official said.
Hope for further congressional action pushed the markets higher Tuesday. The Dow Jones industrial average soared nearly 500 points, recouping much of the 777-point loss, the largest single-day drop, after the House vote.
Congressional leaders had been bombarded by critics on the left and right with demands for new approaches to relieve the crisis.
But strategists in both major parties opted for a much less drastic approach to avoid the protracted wrangling and new shocks to global markets that could come if they started over from scratch. They decided instead to try attracting the relative handful of votes needed for approval by offering modest concessions like the temporary boost in deposit insurance and possible easing of accounting rules.
In a further attempt to build support in the Senate, leaders agreed Tuesday to attach to the bailout measure a Senate-passed tax measure containing incentives for developing renewable energy, shield an estimated 20 million Americans from paying the alternative minimum tax and extend a number of expiring tax cuts for businesses and families.
While they may help win passage in the Senate, the added provisions face an uncertain future in the House and could further delay agreement on rescue legislation.
House Minority Leader John Boehner, R-Ohio, welcomed calls from both major presidential candidates for raising the cap on customers’ bank deposits, noting that it had been proposed by House Republicans during negotiations but rejected by Democrats.
The broad goals of a rescue plan are to help banks and other financial institutions deal with the billions of dollars in underwater mortgage-backed securities that now clog their books and endanger their viability, as well as to end the freeze in the credit markets on which businesses depend for normal operations.
Thus far, both problems have been most clearly visible in the world of global markets and such huge financial institutions as mortgage giants Fannie Mae and Freddie Mac, but economists warn that problems will quickly spread to the rest of the economy, raising the likelihood of a severe recession, more job losses and erosion of personal security.
And there was no shortage of suggestions for new ways to tackle these problems, but the two ideas that attracted the most serious attention were raising deposit insurance limits and modifying accounting rules for companies holding securities that currently have little or no value.
Shelia C. Bair, chair of the Federal Deposit Insurance Corp., said “it would be helpful” if Congress gave the agency the authority to temporarily boost the size of bank accounts covered by the insurance. The FDIC insures individual accounts up to $100,000, joint accounts up to $200,000 and retirement accounts up to $250,000.
One downside to raising the cap is that it could add to taxpayers’ costs if the problems banks are now experiencing grow worse. While the FDIC’s deposit insurance fund is paid through premiums charged to banks, taxpayers would have to step in if the fund were quickly depleted through a series of major bank failures.
“We don’t need to put the taxpayers on the hook for any more than we are,” said Kenneth H. Thomas, a lecturer at the University of Pennsylvania’s Wharton School of Business who has studied deposit insurance.
The accounting rules issue was even more complex and laden with uncertainties.
The rules, put in place last November to help investors understand the value of complicated assets, have been sharply criticized by some lawmakers and conservative analysts, such as former House speaker Newt Gingrich, as exacerbating the financial crisis.
The co-called “mark to market” rules require firms to list such long-term assets as mortgage-backed securities on their books based on sale prices in the open market – a requirement meant to prevent companies from pumping up their balance sheets with unrealistic valuations of such securities.
Critics argue that, in the present mortgage crisis, the rules make firms look weaker than they are by tying valuation to sales made by struggling institutions desperate for cash. On Thursday, a bipartisan group of 65 members of Congress called on Securities and Exchange Commission Chairman Christopher Cox to suspend the rules immediately.
The Bush administration has opposed suspending the rules, arguing that doing so could hurt investor confidence by making it difficult to know the value of companies’ holdings.
But on Tuesday, the SEC and the Financial Accounting Standards Board sought to ease any negative impacts by clarifying that the rules allow accountants to discount so-called “fire sale” prices when trying to determine the fair value of assets.