Both opponents and proponents of the $700 billion financial bailout plan intended to ease strains in the credit markets and help kick-start the economy said they expected it to narrowly pass the House of Representatives on Friday.
But while the Senate's resounding approval on Wednesday of the plan to purchase up to $700 billion worth of illiquid assets from the financial system pushed the proposal a step forward, ideological tensions among House members -- who rejected an earlier version Monday -- left its ultimate fate in question.
"It's going to be a very, very tight vote," says Brian Gardner, senior vice president of Washington research at KBW.
The Senate on Wednesday night voted 74-25 to approve the legislation -- known as the
, or TARP. Its passage came just two days after the
unexpectedly defeated an earlier version, sending stocks into a tailspin.
The Senate inserted several measures in an effort to gain support from House members who rejected the bill. However, those measures threatened to reverse some "yes" votes from fiscally conservative Democrats, known as
, who are concerned about the effect the changes could have on the federal budget. Strong opposition also remained from some House members who were diametrically opposed to the basis of the bill.
Anti-TARP members range from free-market conservatives who consider it akin to socializing the financial sector, to liberals who don't want to spend a dime of taxpayer money to bail out Wall Street banks that made bad decisions.
All told, the bill needs a net gain of 12 representatives to overcome Monday's 228-205 defeat. Congressional leaders, including House Financial Services Committee Chairman Barney Frank (D., Mass., indicated that there was likely enough support to approve the measure. But others, like Democratic leader Steny Hoyer (D., Md.) indicated that additions to the bill, particularly some tax breaks, may hurt its chances of survival.
Before bringing TARP for another vote on Friday, Hoyer said he must be "pretty confident" that there is enough support to pass the measure.
House Republican leader John Boehner (R., Ohio), Republican Whip Roy Blunt (R., Mo.) and Frank pledged their support, and were rallying other members to join them. President George Bush urged House members to vote "yes," predicting economic turmoil otherwise.
"This issue has gone way beyond New York and Wall Street," Bush said during a press conference Thursday morning. "This is for productive, hard-working people who are worried about their savings, worried about their jobs, worried about their small businesses."
Indeed, the public mood has shifted dramatically from opposition to the measure to grudging support. The ratio of constituents calling up Congress to urge a defeat of the bill has dropped from 90-10 to about 50-50, according to what several lawmakers have said. Constituents' outrage as taxpayers who will be footing the bill has been mollified by their fears of financial ruin.
Retirement funds and investments took big hits on Monday, when the
Dow Jones Industrial Average
plunged a whopping 777 points, or 7%, after the House rejected the measure. Perhaps more importantly, credit markets have tightened up dramatically, making it harder for consumers and small businesses to get loans. The tone of media coverage has also shifted, from commonly referring to the measure as a "Wall Street bailout" at first, to now calling it a "rescue plan" or "intervention," while making an effort to explain its potential benefits to the U.S. economy.
Besides administration officials, constituents and House leaders, those who oppose or are on the fence about TARP are also being lobbied heavily by the financial-services industry. John Shadegg (R., Ariz.), is one key vote to watch, KBW's Gardiner says.
"He still holds quite a bit of sway among conservatives in the party," says Gardiner. "I think if he leads, others will follow."
Some representatives, like Zach Wamp (R., Tenn.) and Emanuel Cleaver (D., Mo.), had already decided to switch to a "yes" vote, according to the
. But others, like Marcy Kaptur (D., Ohio), Joe Barton (R., Texas) and Jim DeMint (R., S.C.) were sticking to their guns. DeMint told the
that the bill was "leading us into the pit of socialism," while Kaptur called it "the wrong medicine."
Thursday, Darrell Issa (R., Calif.) and Bobby Scott (D., Va.) also vowed to vote against the measure, questioning its ability to solve problems that are crippling the U.S. economy and the global financial system. But, Scott said, "my guess is it will pass."
According to one insider, in addition to Shadegg and Scott, some key targets of the lobbying effort are Mac Thornberry (R., Texas), Virginia Brown-Waite (R., Fla.), Bill Young (R., Fla.), Cliff Stearns (R., Fla.), Charlie Dent (R., Pa.), Jim Ramstad (R., Minn.), David Scott (D., Ga.) and Earl Blumenauer (D., Ore.).
Among the tax breaks added to the TARP proposal was one that would allow middle-class taxpayers to avoid the controversial alternative minimum tax. The AMT was put in place to garner more tax revenue from the wealthy, but has been criticized for pinching the middle-class as well. Another measure provided exemptions for research and development, as well as renewable energy, to help spur economic growth.
Though some say that Blue Dogs who oppose the tax breaks will reject the measure, they also have to consider that voting "no" could anger middle-class constituents, Gardiner says.
"I actually think it makes it tougher to vote against the bill, not easier to vote against it," he says. "Anyone who votes against the bill will be voting against a fix for the alternative minimum tax."
Another addition lifted the amount of funds that the Federal Deposit Insurance Corp. will cover in an individual bank account, to $250,000 from $100,000. The boost in insured deposits was a popular measure that found support on both sides of the aisle.
The provisions stand to sap tax revenue and increase the amount of money the government is potentially on the hook for -- something that cost-conscious, fiscally conservative legislators who formed the bulk of the opposition to the plan may oppose.
Gardiner predicts that the proposal will pass, but not with more than 225 in favor. He expects more Republicans to support the bill, but says a few more "no's" from Democrats could help offset those gains.
The year-long credit crunch reached crisis proportions early last month, with a bankruptcy filing by
( MER) sale to
Bank of America
and government takeovers of
( FNM) and
The federal seizure last week of
, much of whose assets were bought by
, and the federally brokered deal of
also have rattled nerves.
The stock market recovered roughly half of Monday's dramatic losses the following session and was flat Wednesday. The Dow closed down about 348.22 points again Thursday, as traders awaited word of what the House would do.
Josh Feinnman, chief economist for Deutsche Bank's institutional asset management business, says the market and the economy will be a long way from substantial recovery, even if the bill passes and the TARP program is effective.
"This is not a panacea -- nobody knows if it's really going to work," says Feinnman. "I think it's going to pass, but I expected it to pass on Monday too ... even with the expectation of it passing, the markets are still struggling."