By Jennifer Yousfi
A revised version of the $700 billion banking bailout legislation was signed into law Friday by President Bush after passing in the House of Representatives with a 263-171 vote.
The new law grants the government authority to purchase securities from struggling financial firms facing a liquidity crisis due to the current credit crunch. In addition, the new law grants $149 billion in tax cuts and grants the U.S. Securities and Exchange Commission authority to ease fair-value accounting measures.
The House debated on the bill for most of the day Friday, before putting the measure up to a vote in the afternoon. Many representatives were still uncertain about the proposed bailout, but in the end, fear of the impact of inaction on the economy held sway.
"If we don't act now, those who are least to blame for this mess will suffer the most," said Rep. Judy Biggert, R-Ill., MarketWatch reported.
Republicans picked up an additional 26 votes, while Democrats had an additional 32 votes from representatives that had voted against the bill on Monday. The U.S. market’s steep reaction to the original vote, coupled with the revisions to the legislation, led many to change their position.
The revised legislation had been approved by a 74-25 vote in the Senate on Wednesday. Bush wasted no time in signing the newly approved legislation into law.
“These steps represent decisive action to ease the credit crunch that is now threatening our economy,” Bush said at the White House, Bloomberg News reported.
U.S. markets had been up in early morning trading, but quickly reversed into the red after the law was signed.
At the New York close on Friday, the blue-chip Dow Jones Industrial Average Index had dropped 157.47 points (-1.50%), to close at 10,325.38. The tech-laden Nasdaq Composite Index shed 29.33 points (-1.48%), to reach 1,947.39. And the broader Standard & Poor’s 500 Index lost 15.05 points (-1.35%), to settle at 1,099.23.
The new law contains the following measures added by the Senate that were not part of the original House bill that was slapped aside with the help of House Republicans on Monday:
- An increase in the Federal Deposit Insurance Corp. (FDIC) deposit-insurance cap, boosting the level of government-guaranteed deposits from the current $100,000 to the new level of $250,000.
- A one-year "patch," or relief, from the alternative minimum tax, or AMT, which is expected to save about 24 million households a combined $62 billion.
- Optional insurance for mortgage-backed securities, with financial institutions paying the premiums.
- A "Mental Health Parity" provision that provides insurance for mental illness.
- Roughly $17 billion in tax credits for the development of renewable energy such as wind and solar power.
- An extension of tax breaks that would save individuals and corporations roughly $150 billion over the next 10 years, as well as tax breaks for those impacted by natural disasters.
- The Senate bill also reiterates the SEC’s authority to suspend the so-called "fair-value accounting standard," which requires companies to review assets and report losses if their values decline. Lawmakers, the American Bankers Association, and companies that include American International Group Inc. (AIG), have urged the SEC to suspend or ease the rule, saying it forces firms to report deeper losses than needed on assets such as subprime mortgages, Bloomberg said.
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