The House today voted 263-171 to pass the $700 billion financial market rescue bill, and it was signed by President Bush this afternoon.
No amendments were allowed to the bill that had passed the Senate on Wednesday by a vote of 74-25. The House on Monday rejected an earlier version of the bill by a 228-205 vote.
Investors anticipated the House’s approval, with the Dow Jones industrial average surging more than 300 points as the vote was taking place. But after the vote, the Dow fluctuated before plunging late in the session, ending down 157.15, or 1.5%, at 10,325.70, on a Labor Department report showing 159,000 jobs were lost last month, bringing the nine-month job-loss total to more than 750,000.
The S&P 500 fell 15.04, or 1.35%, closing at 1,099.24; and the Nasdaq composite was down 29.33, or 1.48%, to close at 1,947.39. All numbers are preliminary.
The bill authorizes the secretary of Treasury to establish a Troubled Asset Relief Program for purchasing troubled mortgages or securities related to them. The measure also allows the Treasury to purchase troubled financial institutions or provide them with financial assistance. In return for the purchases, the Treasury will receive equity and debt positions in financial institutions.
The bill also authorizes the Treasury to purchase other, undefined securities necessary to promote financial market stability.
Retirement plans are also eligible to sell their troubled securities to the Treasury under the legislation. (To see the text of the bill, click here.)
The bill gives the Treasury secretary broad authority to contract with asset managers, consulting firms and other related financial institutions to purchase, hold and sell troubled securities, and allows the secretary to issue regulations to limit conflicts by restricting post-employment of employees involved in the federal bailout in getting employment elsewhere.
It also limits compensation, including a ban on “golden parachute” severance payments, of the five highest compensated executives of financial institutions purchased or receiving federal aid under the legislation while the Treasury holds equity or debt in them. The bill also authorizes the recovery of bonuses or incentive compensation paid to the executives based on financial statements “later proven to be materially inaccurate,” according to the bill.
The bill gives the Securities and Exchange Commission authority to suspend Financial Accounting Standards Board’s Statement 157 on fair-value measurement of assets. It also authorizes the SEC to conduct a study of the FASB rule’s impact on bank failures this year and the quality of financial information available to investors.
Along with provisions of the bailout that were rejected by the House on Monday, new add-ons — including a series of popular tax breaks and a provision that would raise the Federal Deposit Insurance Corp. insurance for bank deposits to $250,000 from $100,000 — were credited by lawmakers and the White House for breathing new life into the measure’s prospects.
“This is not all we are doing,” House Financial Services Committee Chairman Barney Frank, D-Mass, said during the floor debate this morning prior to the vote. “We will be back next year to do serious surgery on the financial structure … to prevent this (financial market crisis) from recurring.”
Rep. James Clyburn, D-S.C., said on the House floor today, “I believe this bill must be enacted as soon as possible to keep our country from going deeper into recession.”
Oklahoma Treasurer Scott Meacham had sent a letter to the state’s congressional delegation, urging them to pass the bill today. Mr. Meacham said in an interview that without the bill’s passage the state’s pension plans and endowment could lose at least $73.4 million because of their exposure to Lehman Brothers Holdings Inc. The state stands to lose $42 million in the Oklahoma Teachers’ Retirement System, $15.9 million in the Oklahoma Public Employees’ Retirement System and $9 million in its school land trust, $4.3 million in its workers compensation system and $2.2 million from its tobacco settlement endowment, Mr. Meacham said.
“I think it’s this plus a whole bunch more if nothing happens,” Mr. Meacham said before the vote.
He also said there currently is not enough liquidity in the market now to pay for bonds for roads and other infrastructure projects.
“We have a $300 million road bond issue … we’re not willing to pull the trigger in this kind of market,” he said.
Separately, the SEC late today announced its short-sale ban on financial companies will expire at 11:59 p.m. EDT Oct. 8. The ban had been scheduled to run until Oct. 17.
