U.S. Senator Christopher Dodd, chairman of the Senate Banking Committee, left, and Senator Judd Gregg, a Republican from New Hampshire, speak to reporters at the U.S. Capitol in Washington, Sept. 29, 2008. Photographer: Jay Mallin/Bloomberg News
Sept. 30 (Bloomberg) — The U.S. Senate will try to salvage a $700 billion financial-rescue package after the measure was defeated in the House of Representatives. The lawmakers won’t have a lot of room to negotiate.
While the legislation will need to be tweaked enough to win over reluctant House Republicans, the lawmakers will risk losing votes from Democrats if they veer too far from the delicate compromise that congressional leaders hammered out with the U.S. Treasury.
“They’re not going to totally revamp the bill,” said Pete Davis, president of Davis Capital Investment Ideas in Washington, who spoke to House and Senate leaders yesterday. “They’ll make some minor changes and pass it. This is all about political cover.”
The House rejected the legislation yesterday in a 228 to 205 vote, sending the Dow Jones Industrial Average tumbling 778 points for its biggest point drop ever and erasing more than $1 trillion in market value. The Standard & Poor’s 500 Index fell 8.4 percent, the most since Oct. 26, 1987. The S&P 500 today rose 40.09 points, or 3.6 percent, at 11:51 a.m. in New York. The Dow Jones Industrial Average gained 291.27 or 2.81 percent to 10,656.72.
`A Different Result’
Senators say they have no choice but to revive the measure, which is designed to restore confidence in the nation’s banking system.
“We don’t intend to leave here without the job being done,” said Banking Committee Chairman Christopher Dodd, a Connecticut Democrat. He said lawmakers will “hopefully come back Wednesday and get a different result.”
Senate Minority Leader Mitch McConnell, a Kentucky Republican, vowed that the lawmakers would take action soon.
“We intend to pass this legislation this week and we will pass it on a broad bipartisan basis,” he said today on the chamber floor. Senate Majority Leader Harry Reid, a Nevada Democrat, said approving the legislation is the top priority.
Money-market rates jumped in Europe today, with lenders hoarding cash as the third quarter ends. Rates on three-month loans in dollars were as high as 10 percent as of 10:50 a.m. in London, said Ronald Tharun, a money-market trader at Landesbank Baden-Wuerttemberg in Stuttgart.
To pick up the 12 votes needed to pass the bill in the House, the bill will need cosmetic changes, lawmakers and analysts say. Ninety-five Democrats joined the 133 Republicans who voted against the bill. Both sides are looking for changes.
Expanded FDIC Role?
House Republican conservatives are likely to keep pressing for a mandatory insurance program they initially proposed for mortgage-backed securities. They may also try to force the Securities and Exchange Commission to suspend mark-to-market accounting and require bank regulators to assess the real value of the troubled assets, lawmakers say.
Either measure could drive away Democratic votes.
The Senate may also consider expanding the authority of the Federal Deposit Insurance Corp., Dodd said today.
Under one plan, pushed by House Republicans, the FDIC would issue lenders certificates they could use as capital, which the banks would have to pay back with interest. The proposal would give the FDIC more say in how the institutions are run.
Democrats say they may also seek stronger oversight on the rescue plan, tougher limits on executive compensation and more relief for homeowners facing foreclosure.
Some Democrats want a provision that would allow bankruptcy judges to alter the terms of a home mortgage for individuals in bankruptcy, even reducing the principal balance. That would be a deal-killer for many Republicans, a danger that presidential nominee Barack Obama recognized: He opposed including that in the original bill, angering fellow Democrats.
The Senate won’t hold any roll-call votes today because several lawmakers will be celebrating Rosh Hashanah, the Jewish New Year. Gregg and Dodd urged investors not to view that pause as inaction.
“We can certainly work,” said Dodd.
House Majority Leader Steny Hoyer said he expects his chamber to be ready to take up the plan again after a Senate vote. “We’re not out of business until this is addressed,” Hoyer said.
Hoyer said he has spoken with Republican Whip Roy Blunt and both are committed to working together on a compromise.
Some lawmakers are proving tough to sell on the plan.
“We can craft a much better bill,” said Representative Brad Sherman, a California Democrat who voted against the bill. He objected to the “tens of billions of dollars” that could go to foreign companies and said the oversight board the plan would create would be powerless.
Sherman wants more relief for homeowners and stronger restrictions on executive compensation, among other measures.
Representative Jeb Hensarling, a Texas Republican, said most Republican conservatives oppose the idea of Treasury purchasing troubled assets, because it puts too much of the expense on taxpayers.
“That is a model that House conservatives feel is fundamentally flawed,” said Hensarling, the chairman of a group of more than 100 House Republican conservatives called the Republican Study Committee.
Still, the markets may dictate that Congress act now.
“It’s just not acceptable for Congress to essentially tell Main Street or Wall Street to drop dead,” said Chris Lehane, a Democratic consultant who was former Vice President Al Gore‘s communications director. ``The Dow dropping 777 points is a pretty powerful force to find another 12 votes.”
Last Updated: September 30, 2008 12:45 EDT
By Alison Fitzgerald and Matthew Benjamin