As hoped and awaited, the U.S. Senate passed an updated version of the U.S. Emergency Economic Stabilization Act of 2008. The legislation now needs final approval from the House of Representatives, to be decided on Friday.
The bill now includes a revision to the FDIC's insurance limit from $100k to $250k and a ten-year $150.5 billion package of tax breaks. The bill also includes provisions for the FDIC to draw on an unlimited line of credit from the Treasury Department compared to the current $30 billion loan limit it currently has.
Otherwise, it is virtually identical to the one that failed in the House of Representatives earlier this week. The bill would allow the Treasury to purchase up to $700 billion in illiquid assets from financial institutions in various chunks.
Still, given the events two days ago, when the House rejected the first version, fear that the legislation may yet again face defeat permeates every corner of the market. The first rejection of the bill Monday triggered one of the worst days ever seen on Wall Street and unprecedented losses in North America's major stock indexes.
The view from many U.S. Senators is that the losses on Monday reversed public opinion of the bill, which will likely prompt many of those who opposed the vote just a few days ago to reconsider their votes.
In an interview with CNBC Wednesday morning, U.S. Senator Bob Corker said he fully expects the House now has the votes to pass the $700 billion rescue plan.
On Tuesday, Senate Majority leader Harry Reid said both Senate Democrats and Republicans believe it is essential to work quickly on the legislation to "restore confidence to our financial system and strengthen the economy."
"It is my hope that with the improvements we have made to the administration's proposal, the Senate will pass the legislation [Wednesday] and the House of Representatives will follow suit soon after," he said.
In a press conference on Wednesday, House speaker Nancy Pelosi said the bill could not return to the House floor before Friday. She also said she wanted the bill to include additional provisions to the Senate version.
The news comes on the heels of a string of bad news for U.S. financial markets, with the Federal Deposit Insurance Corporation seizing Washington Mutual and selling most of its assets to JPMorgan Chase on Friday, followed by the acquisition of Wachovia and subsequent sale to Citigroup on Monday.
In recent weeks, the Fed agreed to an $85 billion loan to American International Group, but allowed Lehman Brothers to file bankruptcy and subsequently be sold to Barclays PLC.
The impact of the turmoil has also reached as far as Europe with Fortis Bank in the Benelux, Hypo Real Estate Bank in Germany and Bradford & Bingley in the UK all receiving government funds on Monday.
By Erik Kevin Franco and edited by Megan Ainscow
©CEP News Ltd. 2008