But no matter how it's altered, the package still faces substantial hurdles when the House takes it up again, probably Friday.
Despite the shock of Monday’s stock market plunge after the bill failed, House opposition reflects deep political fault lines that, for more than a year, have undercut effective measures to alleviate the housing recession and credit crisis that led to Wall Street's meltdown.
Opposition to the $700 billion plan has come from the far reaches on both sides of the aisle. Conservative Republicans oppose the idea of making taxpayers cover Wall Street's bad bets, while liberal Democrats argued that more help is needed for struggling homeowners. With the election fast approaching, it remains to be seen whether the bill passed by the Senate Wednesday will bring enough of those "no" votes back to the center to win approval.
“That may mean you have to add something to bring on more Republicans and something to help bring on more Democrats,” said Rep. Chris Van Hollen, D-Md. “The problem is, if you just add stuff to the right, you may lose votes on the other side. That’s why this is such a delicate balance.”
Some of the sticking points that sank the package Monday did not change in the Senate version. For example, many of those who voted “no” simply balked at the staggering $700 billion size of the rescue plan.
Rep. John Culberson, R-Texas, was among those voting no because the package carried “just an unacceptable price tag.”
“This vote, in my mind, was a vote between bankrupting my daughter and our kids or bankrupting a few Wall Street banks who made bad decisions,” he said.
Opponents like Culberson also balked at the idea of extending help to foreign bankers, even though globalization of the credit markets was a key factor in their rapid unwinding. With U.S. and foreign banks so interdependent, strictly limiting the aid to U.S. banks could seriously undermine the rescue effort.
Many House Republicans who voted against the rescue also said they had a hard time accepting the basic idea of having the government solve what they see as a market problem.
“I am bothered that Secretary Paulson offered an immediate government solution rather than taking the time to explore effective private sector and market-based solutions," said Rep. Steve Buyer, R-Ind. “The Paulson plan was an unprecedented infusion of power into the private financial sector.”
House members who voted no also cited voter outrage over what many see as the financial excesses that led to the current disarray.
“We are now in the Gold Age of thieves,” said Rep. Pete Visclosky, D-Ind. “And where I come from we put thieves in jail, we don’t bail them out."
Despite the range of objections, the Senate is hoping that their sweeteners will make the bill easier for the House to swallow the second time around.
Among the new provisions added by the Senate:
- Insurance on bank deposits would rise to $250,000 per account from $100,000 at least through the end of 2009.
- A temporary change to the alternative minimum tax exempting 20 million taxpayers from paying higher taxes.
- Tax relief for victims of natural disasters in the Midwest, including flooding and tornadoes.
- One item missing from the House bill also failed to make the Senate bill: a proposed change in the bankruptcy law that would allow judges to modify mortgage loan terms.
Currently all other debts, including mortgages on second homes, can be reworked in bankruptcy court. Democrats have been pushing for the change for more than a year. For some, the absence of the provision was deal breaker in Monday’s vote.
“I couldn’t in good conscience vote to bail out Wall Street without something in there for American families at risk of losing their homes,” said Rep. Linda Sanchez, D-Calif., shortly after voting against the rescue.
But adding so many revisions risks losing support of members who voted "yes" on the original draft.
Recent signs that the economy is rapidly losing steam may help the revised package get a better hearing in the House the second time around.
Three fresh pieces of economic data Wednesday pointed to a deepening downturn. A widely followed manufacturing index showed a sharp decline in new orders, production, order backlogs and factory jobs. A separate report showed mortgage applications fell sharply in the latest week. And automakers reported that sales of cars and trucks fell below 1 million units in September — the worst month since 1993.