Crucial vote set for 7:30 p.m. Eastern time; optimism on passage
The Senate is set to vote Wednesday evening on the Bush administrations high-stakes plan to rescue financial markets.
Sen. Bob Corker, a member of the Senate Banking Committee, predicted the measure would be approved in both chambers.
“The Senate will pass it overwhelmingly tonight,” said Corker, R-Tenn. The vote is slated to take place at 7:30 p.m. Eastern time.
The thinking among congressional leaders is that a bipartisan vote in favor of the package in the Senate will build momentum for the bill in the House of Representatives, where the measure went down to a shocking defeat Monday, touching off large-scale selling on Wall Street.
The revamped Senate version contains several new provisions and tax breaks to make the bill more palatable to members who might be on the fence about the measure. But it sticks to the core plan developed by Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke to have the government buy and hold toxic mortgage assets, freeing up funds for banks to begin lending again.
Corker said he detected a “thawing” of opposition among critics of the measure. He spoke in an interview on CNBC cable-television channel.
The most sweeping change is language to raise the limit for insured bank deposits sought by the Federal Deposit Insurance Corp., which asked to raise the cap temporarily to $250,000 from $100,000.
This is designed to attract votes of some members of Congress who said that little was being done for Main Street.
Regional banks had lobbied hard for increasing the deposit-insurance limit, as they said that government rescue of Washington Mutual (WAMUQ) and Wachovia (WB) had given consumers the impression that bigger banks were a safer place to hold their savings.
On Tuesday, President Bush and Democrats on Capitol Hill pledged to cooperate on a plan and to cool partisan rhetoric that flared after the House defeated the measure.
The U.S. stock markets seemed to take the politicians at their word, and stocks rebounded after their sharp fall on Monday. Stocks came under renewed selling pressure in early action Wednesday, however.
Meanwhile, credit markets remain under severe stress.
Sen. Judd Gregg, the New Hampshire Republican who’s been serving as the leading GOP negotiator on the rescue plan in the Senate, said the record 777-point drop in the Dow Industrial Average on Monday focused both sides on the necessity to complete work on the bill.
Not out of the woods by a long shot
Economists stressed that the measure shouldn’t be regarded as a panacea.
“The mortgage-finance rescue package won’t be an instant cure-all for the economy, but it is the first government step that attempts to address the root causes of the mess,” said Lou Crandall, chief economist at Wrightson-ICAP.
“At a minimum, however, the package improves the odds that the economy can begin to heal itself,” he wrote in a note to clients.
Economists now expect a sharp slowdown in the months ahead.
Analysts at Macroeconomic Advisors, a leading forecasting firm that had been one of the most upbeat about the outlook, said that the financial markets’ turmoil over the past two weeks would surely reduce economic growth in coming months.
Some prominent economists still believe that the government would have to step in and purchase mortgages from homeowners to allow them to refinance under more favorable terms.
Many homeowners now find that their mortgages are “under water” — they owe more on their homes than they could sell them for. This gives homeowners the incentive to just walk away from the loan.