Congress OKs historic bailout bill; Bush signs it

WASHINGTON – With the economy on the brink and elections looming, Congress approved an unprecedented $700 billion government bailout of the battered financial industry on Friday and sent it to President Bush who quickly signed it.

“We have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country,” Bush said shortly after the vote, although he conceded, “our economy continues to face serious challenges.”

Underscoring that somber warning, the Dow Jones industrials, up more than 200 points at the time of the House vote, ended the day down 157.

The final vote, 263-171 in the House, capped two weeks of tumult in Congress and on Wall Street, punctuated by daily warnings that the country confronted the gravest economic crisis since the Great Depression if lawmakers failed to act.

There were 58 more votes for the measure than an earlier version that failed on Monday.

House Speaker Nancy Pelosi, D-Calif., said the bill was needed to “begin to shape the financial stability of our country and the economic security of our people.”

Wall Street welcomed the action, but investors also were buffeted by a bad report on the job market. The Labor Department said employers slashed 159,000 jobs in September, the largest cut in five years and further evidence of a sinking economy.

At its core, the bill gives the Treasury Department $700 billion to purchase bad mortage-related securities that are weighing down the balance sheets of institutions that hold them. The flow of credit in the U.S. economy has slowed, in some cases drying up, threatening the ability of businesses to conduct routine operations or expand, and adversely affecting consumers seeking financing for mortgages, cars and student loans. Some state governments have also experienced difficulty borrowing money.

The House vote marked a sharp change from Monday, when an earlier measure was sent down to defeat, largely at the hands of angry conservative Republicans.

On Friday, 91 Republicans joined 172 Democrats to support the bill, while 108 Republicans and 68 Democrats opposed it.

Twenty-five Republicans and 33 Democrats switched their votes from “no” to “yes.” One Democrat who supported Monday’s version, Rep. Jim McDermott of Washington, opposed the bill Friday. One Republican who didn’t vote Monday, Rep. Jerry Weller of Illinois, voted “yes” on Friday.

Several of the Democrats who switched were members of the Congressional Black Caucus who said presidential candidate Barack Obama had pledged to support legislation easing the burden on consumers if he wins the White House.

Republican presidential candidate John McCain also lobbied for the measure, according to aides who declined to release a list of lawmakers he called.

“No matter what we do or what we pass, there are still tough times out there. People are mad – I’m mad,” said Republican Rep. J. Gresham Barrett of South Carolina, who opposed the measure the first time it came to a vote. Now, he said, “We have to act. We have to act now.”

Rep. John Lewis, D-Ga., another convert, said, “I have decided that the cost of doing nothing is greater than the cost of doing something.”

Critics were unrelenting.

“How can we have capitalism on the way up and socialism on the way down,” said Rep. Jeb Hensarling of Texas, a leader among conservative Republicans who oppose the central thrust of the legislation – an unprecedented federal intervention into the private capital markets.

Earlier in the week, the legislation was altered to expand the federal insurance program for individual bank deposits, and the Securities and Exchange Commission took steps to ease the impact of the questionable mortgage-backed securities on financial institutions.

In the moments before the vote, Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, pledged “serious surgery” next year to address the underlying causes of the crisis.

Typifying arguments the problem no longer is just a Wall Street issue but also one for Main Street, lawmakers from California and Florida said their state governments were beginning to experience trouble borrowing funds for their own operations.

Pelosi said, “We must win it for Mr. and Mrs. Jones on Main Street.”

One month before Election Day, the drama unfolded in an intensely political atmosphere.

Members of the Congressional Black Caucus credited Obama with changing their minds.

Reps. Elijah Cummings and Donna Edwards, both Maryland Democrats, were among them. They said Obama had pledged if he wins the White House that he would help homeowners facing foreclosure on their mortgages. He also pledged to support changes in the bankruptcy law to make it less burdensome on consumers.

Obama’s rival, Republican Sen. McCain, announced a brief suspension in his campaign more than a week ago to try and help solve the financial crisis.

Republican Rep. Sue Myrick of North Carolina, who switched her vote to favor the measure, said, “I may lose this race over this vote, but that’s OK with me. This is the right vote for the country.”

Myrick said she hadn’t heard from McCain as she made up her mind about how to vote. “They told me he was going to call me. He didn’t,” she said.

The vote on Monday had staggered the congressional leadership and contributed to the largest one-day stock market drop in history, 778 points as measured by the Dow Jones Industrials.

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Associated Press writers Jim Abrams, Charles Babington, Alan Fram, Suzanne Gamboa, Kimberly Hefling, Andrew Miga, Andrew Taylor, and Erica Werner contributed to this story.