In an effort to revive the stalled financial rescue package, Senate leaders are trying to jump-start the process by tweaking the bill in hopes of winning the 12 House votes needed to cover Monday's shortfall. But no matter how it's altered, the package still faces substantial hurdles when the House takes it up again.
Despite the shock of Monday’s stock market plunge after the bill failed, 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 on Main Street. Despite the range of objections, the Senate is hoping that a few sweeteners will make the bill easier for the House to swallow the second time around.
There’s no shortage of ideas for new provisions to the bill that was defeated. Some have proposed a tax holiday for people who buy distressed houses and later sell them for a profit. Others have suggested that instead of buying troubled assets, the government could provide guaranteed loans to private investors who bought troubled bank assets. Some changes are likely off the table – including the total dollar amount of money made available to buy up troubled assets. A smaller amount, Treasury officials insist, won’t be enough. Even so, there are still no guarantees the plan will work — a problem cited by a number of opponents.
The most contentious was 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. For some, the absence of the provision was deal breaker in Monday’s vote.
Two potential "sweeteners" in the Senate bill are a boost in the level of federal insurance on bank deposits and more tax cuts and incentives for businesses. Increasing the limits of deposit insurance — which have been flat since 1980 at $100,000 per account — would help answer critics who said the draft bill focused on helping financial companies rather than their customers. The measure also taps the lobbying power of regional and community banks.
The Senate is also considering adding a set of popular business tax breaks and a provision to rein in the alternative minimum tax, which effectively raises taxes on more than 20 million middle-class voters. But those moves risk angering moderate Democrats who are worried about the impact those tax cuts will have on the swollen budget deficit.
Some measures may not require approval. The Securities and Exchange Commission has moved to relax an accounting standard that forced banks to aggressively write down the value of troubled assets, even though the assets may have substantial long-term value. Those write-downs have put enormous pressure on banks as they try to raise capital to cover their losses.
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 Ford reported Wednesday that car sales fell 34 percent in September —worse than expected.