Updated from 4:28 p.m. EDT.The U.S. Senate on Wednesday night approved a revised bailout bill intended to address the mounting financial crisis that has crippled worldwide credit and equities markets. The Senate voted 74-25 to approve the legislation, which authorizes the federal government to buy up to $700 billion in mortgage-related assets clogging bank balance sheets and freezing credit markets. Its passage comes just two days after the House of Representatives unexpectedly rejected an earlier version, sending stocks into a tailspin. The House is expected to again vote on the measure on Friday. Twelve representatives must switch their votes to overcome Monday's 228-205 defeat of the bill. The Senate's approval came shortly after the Securities and Exchange Commission extended a temporary ban on short selling of financial companies through Oct. 17. The ban was enacted last month to stem steep losses in financial companies amid the crisis. The new bailout bill provisions include some $110 billion in additional tax incentives intended to spur economic growth, and an increase in the level of bank-account deposits the government will protect. The Federal Deposit Insurance Corp. will now cover up to $250,000 per account, instead of the previous level of $100,000. The latest draft is the fourth edition of the legislation, and comes as the result of much political wrangling among administration officials, Democratic congressional leaders and conservative House Republicans. Presidential nominees Barack Obama (D., Ill.) and John McCain (R., Ariz.), and Sen. Joe Biden (D., Del.), the Democratic vice presidential nominee, returned to Washington for the vote Wednesday night.
Wall Street wavered ahead of the Senate vote, as the Dow Jones Industrial Average fell more than 200 points during the day, but closed down just 19.59. It remained unclear whether legislators in the House who have been staunchly against the unpopular and costly bill will be swayed. 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. House Majority Leader Steny Hoyer (D., Md.) said he expected the bill to pass through the Senate, but that he was unhappy about the tax provisions and not convinced it would pass muster in the House. House Speaker Nancy Pelosi (D., Calif.) expressed hope in a statement that "Congress can agree on legislation in the very near future," but did so without tipping her hand as to whether she would vote for the Senate version of the bill. Senate Banking Committee Chairman Christopher Dodd (D., Conn.) would only go as far as to say that some representatives who voted "no" are "having serious second thoughts about it," according to the Associated Press. "We expect the Senate to pass the bill as early as this evening with a bipartisan vote, though we would caution that negotiations in the House remain fluid," FBR analyst Andrew Parmentier said in a note before the Senate's vote Wednesday. Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, told CNN the chances of the bill's passage by the House was "better than even," despite objections some Democrats may have to the new tax breaks. He said lawmakers who were opposed to the plan have since Monday seen some of the economic consequences of doing nothing.
"It's not possible to scoff at the predictions of doom if we don't' do anything," Frank said. There could be severe economic consequences if there are further delays. The Dow plunged a dramatic 7%, or 777 points, after the House rejected the bill on Monday. Credit markets remain in dire straits, with limited availability and short-term lending costs running incredibly high. "I think we have terrible, terrible, terrible problems," Berkshire Hathaway ( BRK.A) CEO Warren Buffet said on CNBC Wednesday afternoon while discussing the firm's $3 billion investment in GE ( GE). "I said two weeks ago we have an economic Pearl Harbor and it's worse than that now." Indeed, the credit-crunch and toxic mortgage holdings have led to the demise, bailout or buy-out of Lehman Brothers, Merrill Lynch ( MER), AIG ( AIG), Washington Mutual and Wachovia ( WB) in just a matter of weeks. If surviving banks are unable to unload their illiquid assets, worries about their financial health could threaten their survival too. The market turmoil and credit-crunch have spread across the globe this week, to Asia and Europe as well. Market conditions have cut big holes in pension plans and portfolios and made it harder for even small businesses to fund day-to-day operations. As a result, constituents calling members of Congress about their votes has switched from an overwhelming "no" to a more even keel of those who oppose and support the measure. That makes it easier for lawmakers -- some of whose seats are up for grabs in next month's election -- to vote "yes" on the bill. Wall Street rallied on Tuesday -- with the Dow recouping 485 points -- as concerns eased that the bill was doomed to failure or a long delay.