Congressional leaders scrambled today to find enough changes to sell the multibillion-dollar financial rescue to their rank-and-file, with long-distance prodding from John McCain and Barack Obama on the presidential campaign trail.
WASHINGTON -- Congressional leaders scrambled Tuesday to find enough changes to sell the multibillion-dollar financial rescue to their rank-and-file, with long-distance prodding from John McCain and Barack Obama on the presidential campaign trail.
Both McCain and Obama announced their backing for a plan that some House Republicans had pushed earlier: raising the federal deposit insurance limit from $100,000 to $250,000 in a bid to reassure nervous Americans and to shore up the economy. President Bush sought to avoid being marginalized, making another statement at the White House. "Congress must act," he demanded.
Republican House aides said the FDIC proposal might be attractive to some conservatives who want to help small business owners and avert runs on banks by customers fearful of losing their savings. The leadership needs to find sufficient changes to attract about a dozen more votes, the number needed to avoid the kind of stunning defeat that supporters of a bailout suffered Monday.
Obama's embrace of the idea might attract some Democratic votes.
Bush warned that failing to pass such a plan would bring severe consequences to the U.S. economy. McCain and Obama echoed his sentiments. Both the Republican and Democratic nominees spoke with Bush on Tuesday, and both have let colleagues know they embrace the higher FDIC insurance idea.
Another possible change to the bill would modify "mark to market" accounting rules. Such rules require banks and other financial institutions to adjust the value of their assets to reflect current market prices, even if they plan to hold the assets for years.
Some House Republicans say current rules forced banks to report huge paper losses on mortgage-backed securities, which might have been avoided.
The House on Monday balked at approving the Bush administration's $700 billion proposal, its 228-205 vote, sparking the largest sell-off on Wall Street since the day after the Sept. 11, 2001, terror attacks
Bush noted that the maximum $700 billion in the proposed bailout was huge, but was dwarfed by the $1 trillion in lost wealth that resulted from Monday's stock-market plunge.
"Because the government would be purchasing troubled assets and selling them once the market recovers," he said, "it is likely that many of the assets would go up in value over time. Ultimately, we expect that much - if not all - of the tax dollars we invest will be paid back."
The rescue package and the nation's faltering economy was also Topic A on the presidential campaign trail.
"The first thing I would do is say, 'Let's not call it a bailout. Let's call it a rescue," McCain told CNN. The Arizona Republican said that "Americans are frightened right now" and it is the job of political leaders to give them both an immediate solution and a longer-term approach to the problem.
McCain announced a brief suspension of his campaign last week to return to Washington and become involved in negotiations on the bailout but would not say whether he was contemplating that again. "I will do whatever is necessary" to help, he said.
Top congressional and White House officials were stunned when the House rejected the massive rescue plan, and a host of lawmakers said Tuesday they thought Congress should persevere in its attempt to find a political consensus.
Obama issued a statement Tuesday saying lawmakers should not start from scratch as they weigh their next move.
The Illinois senator said that significantly increasing federal deposit insurance would help small businesses and make the U.S. banking system more secure as well as restore public confidence in the nation's financial system.
White House spokesman Tony Fratto said that McCain and Obama each called and spoke to the president on the crisis. "Both calls were very constructive, and the president appreciated hearing from them," he said.
Fratto said both senators offered ideas and agreed the crisis was a critical one that needed to be addressed. "We appreciate hearing them and will continue to work with congressional leaders on ideas that will help the economy," Fratto said.
In his comments from the Diplomatic Reception Room of the White House, Bush pointed to Monday's drop in the Dow Jones industrials.
"The dramatic drop in the stock market that we saw yesterday will have a direct impact on retirement accounts, pension funds and personal savings of millions of our citizens," he said. "And if our nation continues on this course, the economic damage will be painful and lasting."
He said he was disappointed by Monday's House vote but that "this is not the end of the legislative process."
"I recognize this is a difficult vote for members of Congress," Bush said. "And I understand that. But the reality is we are in an urgent situation and the consequences will grow worse each day if we do not act."
He said this was a critical moment for the U.S. economy. "And we need legislation that decisively addresses the troubled assets now clogging the financial system, helps lenders resume the flow of credit to consumers and businesses, and allows the American economy to get moving again."
Earlier, House Majority Leader Steny Hoyer, D-Md., said "doing nothing is not an option" as lawmakers scrambled to structure a new bailout proposal that would attract reluctant lawmakers and still soothe the unnerved financial markets.
With the House not scheduled to meet again until Thursday, congressional leaders and administration officials promptly sought to assess what types of changes could win over enough votes to guarantee success.
Obama said Tuesday that lawmakers should not start from scratch as they weigh their next move.
The bill's failure came despite furious personal lobbying by Bush and support from House leaders of both parties. But the legislation was highly unpopular with the public, ideological groups on the left and the right organized against it, and Bush no longer wielded the influence to leverage tough votes. Even pressure in favor of the bill from some of the biggest special interests in Washington, including the U.S. Chamber of Commerce and the National Association of Realtors, could not sway enough votes.
The legislation the administration promoted would have allowed the government to buy bad mortgages and other deficient assets held by troubled financial institutions. If successful, advocates of the plan believed it would have helped lift a major weight off the already sputtering national economy.
Treasury Secretary Henry Paulson emerged after the vote and warned of a credit crunch that would affect American businesses and said families would find it harder to get student loans and car loans.
"We need to work as quickly as possible," he said gravely. "We need to get something done."
-- The Associated Press