The U.S. Senate voted last night, Wednesday October 1 to overwhelmingly pass a multi-billion dollar rescue fund for at-risk financial institutions, placing additional pressure on the House to clear the measure amid signs that opposition appears to be cracking in the lower chamber.  HAI will continue to closely track developments in Washington on this issue.

Senators voted 74-25 to rework the original House legislation to include sweeteners such as a tax-extender package, a patch for the alternative minimum tax (AMT), disaster aid, and an increase in Federal Deposit Insurance Corporation (FDIC) coverage amounts from $100,000 to $250,000 for one year, along with an unlimited credit line for the agency from the Treasury.

The FDIC insurance increase is seen as a positive for getting extra votes on both sides of the aisle in the House.  The downside is for fiscally conservative lawmakers because the insurance program is paid for from bank fees, which will likely be passed on to the consumer.

It is unclear when the House will vote.  Sources on Capitol Hill are saying probably on Friday, October 3.  However, there is an outside chance that if enough House members indicate their support for the bill, the House vote could come as early as tonight, Thursday, October 2.  Moving up the vote to Thursday night, however, would require adopting a same-day rule in the House, which requires a two-thirds vote of approval.  This would require an enormous swing in members’ sentiment to go from the 205 “yes” votes the House version of the bailout package received September 29 to the 290 required for two-thirds adoption of such a rule.

Some House members who voted against that chamber’s version on the legislation earlier in the week appear to be more receptive to the Senate’s version, while others remain unswayed.  Some supporters of the first House bill have now moved to undecided.

The Bush administration has underlined its support for the measure in a statement of administration policy issued on Wednesday, October 1.  That statement reads:

“Passage of the Senate amendments to H.R. 1424 is of tremendous importance to all Americans. If the financial markets fail to function, American families will face great difficulty in getting loans to purchase a home, buy a family car, or finance a child’s education. Businesses, too, will be unable to attract the credit they need to retain and create jobs. These concerns are not hypothetical. Even during the period that Congress has considered such legislation, there have been rapidly accumulating examples of businesses, state and local governments and families all across America forced to constrain their planned activities because of a lack of access to the capital that they require to meet obligations, grow their businesses, and satisfy family priorities.”

If the House balks again, it might still be possible to craft legislation that would win over most of the 95 Democrats who voted “no” earlier this week.  Such a proposal might include a larger government ownership stake in more rescued financial firms, this time with full voting rights, automatic bankruptcy relief for people with mortgages, and a requirement that executives in bailout companies work for a dollar a year, just like Lee Iacocca did as part of the Chrysler bailout in the late 1970s.

If all attempts fail, congressional leaders could just adjourn until after the elections and promise to deal with the financial crisis in a lame-duck session – the ultimate political decision.  Polling among the public shows many still dubious of a government rescue plan, suggesting voters don’t believe economists’ and political leaders’ dire warnings about doing nothing.  Voters might only support a solution if they feel the consequences of this meltdown is their daily lives.  The voters might have to decide in November whether a bailout is a national priority or a Washington-Wall Street tempest in a teapot.

Conventional wisdom is that a deal can still make it through this week, and fear of the voters’ wrath in November.  Breaking News will be posted on the HAI website as developments unfold on Capitol Hill.