Congress leaders optimistic on revived bailout

By: AP
By: AP

WASHINGTON (AP) -- The Senate moved toward passage Wednesday of a $700 billion financial industry bailout as opposition to the package among House Republican conservatives appeared to be softening, thanks partly to a provision increasing insurance for people's deposits.

Congressional leaders from both parties said they were hopeful that a new version of the rescue plan could be cleared late this week after its stunning defeat that sparked a historic sell-off on Monday. House Democratic leaders tentatively planned a Friday vote.

One House Republican who joined two-thirds of GOP lawmakers Monday in voting "no" indicated he's reconsidering. Others were also pondering a switch, according to congressional officials who spoke on condition of anonymity because they haven't publicly committed to changing their votes.

Rep. John Shadegg of Arizona, a leading conservative, told a Phoenix radio station Wednesday that he'd be "inclined to vote for the bill" if it raised the cap on federal deposit insurance and changed a rule that forces companies to devalue assets on their balance sheets to reflect the price they can get on the market.

The revised package to be voted on in the Senate, which adds $100 billion in tax breaks for businesses and the middle class, temporarily increases the deposit insurance cap from the current $100,000 to $250,000. The Securities and Exchange Commission said Tuesday it was easing the accounting rules in some cases.

In a statement Wednesday, Rep. John Boehner, R-Ohio, the minority leader, called both "a victory for House Republicans."

Congressional leaders said the changes should improve the package's chances - a message they hoped wouldn't get lost on a convulsive Wall Street.

Some also saw heightened odds for the measure based on a flood of e-mails, calls and letters from constituents chiding Congress for inaction on the financial crisis. The feedback indicated greater public acceptance of the measure - if not a collective embrace - by voters about five weeks before the elections.

House Republican Whip Roy Blunt said calls and e-mails to congressional offices that were running about 90 percent against the measure earlier now are coming in about a "50-50" pace.

Even a 50-50 proposition might have been attractive on Wall Street, where the Dow Jones industrials at times lost more than 200 points in their third triple-digit move this week. Credit markets remained extremely tight and stocks also fell on a report that an index of manufacturing activity fell significantly in September.

President Bush planned to call lawmakers ahead of the crucial vote,

Democratic presidential nominee Barack Obama and his GOP rival, John McCain, planned to fly to Washington for the Senate vote, as did Democratic vice presidential nominee Joe Biden, adding to the political intrigue, and the White House continued to lobby hard, both publicly and privately.

At the daily briefing Wednesday, spokesman Tony Fratto took the unusual step of citing the New York Times, as well as papers across the country, that carried stories on the tightening credit squeeze on small businesses, municipal projects and jobs. "It is affecting real Americans out there," he said.

The legislation essentially would allow the government to buy bad mortgages and other devalued assets held by troubled financial institutions. If successful, advocates of the plan believe, that would help lift a major weight off the already sputtering national economy.

Officials in both parties predicted the measure would pass the Senate by a wide margin.

Behind the scenes, the president was conferring with Treasury chief Henry Paulson and Fed chairman Ben Bernanke to get an update and to plot strategy. The presidential spokesman told reporters that Bush's calls "so far have all been very positive. We feel that there's a sense of momentum."

Fratto called the increased deposit insurance "an important improvement" to the bill, and also welcomed the added tax breaks, calling them "helpful" despite the White House's initial desire for a clean bill.

Scrambling to revive a package that met with bitter derision among constituents who viewed it as a giveaway to Wall Street, the Senate added a number of sweeteners designed to please rural lawmakers, including disaster aid for hurricane-battered states and money for rural schools. The package was hitching a ride on a popular measure to require health plans for 51 or more employees to give equal treatment to mental health or addiction if they cover such illnesses.

Hoyer said, however, he was concerned that the tax additions could complicate the chances of final congressional passage when the legislation comes back to the House floor for a vote.

There are worries that fiscally conservative House Democrats known as "Blue Dogs" will be repulsed by the tax breaks, and could vote no because they have believe cuts should be bankrolled with spending cuts or other tax increases.

The tax plan passed the Senate last week on a 93-2 vote. It included AMT relief, $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana, and some $78 billion in renewable energy incentives and extensions of expiring tax breaks. All told, it would cost about $112 billion over five years.

In a compromise worked out with Republicans, the bill does not pay for the AMT and disaster provisions, but does have revenue offsets for part of the energy and extension measures.

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Associated Press reporters Terence Hunt and Jennifer Loven contributed to this story.

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