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Bush signs $700B bailout bill into law

President Bush signed the $700 billion financial bailout package into law Friday afternoon after the the House voted 263-171 in favor of the legislation.

The new law authorizes the Treasury Department to spend up to $700 billion to buy mortgages and other troubled assets from financial institutions. It requires the department to modify mortgages whenever possible to keep people in their homes.

"By coming together on this legislation, we have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country," President Bush said.

Treasury Secretary Henry Paulson said his department "will move rapidly to implement the new authorities, but we will also move methodically."

Federal Reserve Board Chairman Ben Bernanke said the House vote "demonstrates the government's commitment to do what it takes to support and strengthen our economy." He pledged to work closely with the Treasury Department and "use all of the powers at our disposal to mitigate credit market disruptions and to foster a strong, vibrant economy."

Many members who voted for the bill said they did so reluctantly, but feared the economy would sink into a deep recession or even a depression if Congress failed to take action to restore the flow of credit in the economy. Doing nothing "will put us in an economic slump like most of us have never seen," said House Minority Leader John Boehner, R-Ohio.

After the vote, Rep. Brad Miller, D-N.C., said he was "part of the nose-holding caucus" who voted for the bill, noting he has been a critic of mortgage lending practices for the past couple of years. The legislation was necessary, he said, because "credit is grinding to a halt." If Congress failed to act, the result would be "no small business being able to buy inventory unless you pay cash for it," he said.

Miller, however, immediately ran into negative feedback over his vote as he walked from the Capitol to his office. Members of Code Pink, the antiwar group that has diversified into economic policy, greeted members of Congress with signs such as "Bail out the banks -- it's the American Way." One protester carried a package labeled "From Congress to the Rich."

Inside the House chambers, opponents said taxpayers shouldn't be on the hook for bad bets made by Wall Street. Rep. Joe Barton, R-Texas, said some financial institutions may be holding back on lending because they are waiting for a federal bailout, but overall "the credit markets are working."

Supporters of the bill pointed to provisions aimed at protecting the taxpayers. Companies that sell mortgages and mortgage-back securities to the government will be required to provide warrants to the government so taxpayers will benefit if the companies’ earnings improve. The bill also includes limits on golden parachutes and executive compensation for companies that participate in the program.

The bill also creates a government insurance program to guarantee troubled assets, an alternative sought by House Republicans.

The Senate added additional provisions, including a temporary increase from $100,000 to $250,000 in Federal Deposit Insurance Corp. coverage of bank deposits.

"This expansion is good for consumers, is paid for entirely by banks and will help Main Street without increasing costs for taxpayers," said Edward Yingling, president and CEO of the American Bankers Association.

The bill also now extends a variety of expiring tax breaks, ranging from the research and development tax credit to tax incentives for alternative energy. The bill also would keep the alternative minimum tax from hitting an additional 24 million people.

Friday's vote followed an intense week of lobbying by business groups, who contended Wall Street’s financial meltdown was beginning to choke the flow of credit to Main Street business as well.

“Our membership is telling us that there’s either no credit available or it’s so tight it’s not available,” said Bruce Josten, the chief lobbyist for the U.S. Chamber of Commerce.

By buying troubled loans, the Treasury Department will remove these assets from the books of financial institutions and establish a market price for them, said Martin Regalia, the chamber's chief economist. This should free up credit markets, he said.

Todd Stottlemyer, president of the National Federation of Independent Business, said the Wall Street bailout was a “bitter pill” for small businesses to swallow, but they know their health and the health of their vendors and suppliers depend on credit being available.

Credit Triangle Business Journal