The U.S. House of Representatives reversed course Friday and approved, 263-171, the financial rescue package it had rebuffed Monday by a 228-205 margin.
In between the two House votes, the Senate rewrote the bailout plan to a 450-page package festooned with new tax breaks, a few important financial stabilizers, and some plain old-fashioned pork.
The most important change was the Senate’s decision to increase the limit on federal deposit insurance to $250,000 from $100,000. That move was supported by many local banks, which in turn helped persuade some of those who voted “no” Monday to change their tunes.
But clearly, the dramatic 777-point drop in the Dow Jones that followed Monday’s feckless action also shocked House members who had thought they could game the system by voting against a vital but unpopular bill that they assumed would pass despite their opposition.
The market regained some of the lost ground throughout the week as it became clear that the Senate would find a way to rescue the rescue. After final passage of the plan Friday, the Dow dipped 157 points — a classic demonstration of the maxim that the market “rises on the rumor and falls on the event.”
In some respects, the saga of the bailout illustrates the line: “Laws are like sausages. It’s better not to see them being made.”
But given that democracy is a messy process, the changes wrought in the Senate did little harm and substantial good. The change in FDIC insurance does help restore investor confidence and is unlikely to cost taxpayers a dime. In practice, uninsured deposits are almost always paid off at no cost to taxpayers when a bank fails and the FDIC arranges for it to be bought out by a solvent institution, as Wells Fargo just did with Wachovia.
Likewise, the fix to stop the Alternative Minimum Tax from gouging the middle class won’t cost anything either — because Congress would never, and should never, actually let that confiscatory levy batter voters.
The final rescue package, signed by President Bush on Friday, also extends $17 billion in tax credits for the development of solar, wind and other forms of renewable energy. These are very sound investments in America’s future and if packaging them with the financial stabilizers helped lure a few more representatives on board, well and good.
Gov. Bill Ritter called extension of the credits “welcome news for Colorado companies involved in the manufacturing, developing, installing, or maintaining of wind energy projects. Most importantly, with the crisis on Wall Street, this legislation will provide new and continued economic opportunities for Main Street America and rural America.”
We agree with the governor. But the moral here is less “all’s well that ends well” than John McCain’s apt description of the rescue plan as a “tourniquet” to the bleeding U.S. economy.
Now that the patient is stabilized, Congress and the regulatory agencies must begin the long process of restoring our enfeebled financial system to basic health.
