U.S. House Clears Way to Pass New $700 Billion Plan (Update1)

Oct. 3 (Bloomberg) — The U.S. House of Representatives cleared the way to complete action on a Senate-passed $700 billion financial-market rescue package that was refashioned to entice enough votes for passage.

By a vote of 223-205, the House prevented members from offering amendments that could snarl the proceedings. The tally signaled the plan has enough support to clear Congress and be sent to President George W. Bush to be signed into law.

At least 12 House members said they will drop their opposition to the plan and support it. The measure failed by a dozen votes earlier this week. The House roll call was scheduled for early this afternoon.

“Today we have a second chance,” said Representative David Dreier, a California Republican. “The federal government must now do its part to undo the damage.”

The Bush administration issued a statement today saying it “strongly supports and urges swift House passage” of the bill.

The legislation lets the government buy troubled assets from financial institutions rocked by record home foreclosures. It contains provisions favored by House Republicans, including $149 billion in tax breaks, a higher limit on federal bank-deposit insurance and changes in securities law.

It also restates securities regulators’ authority to suspend asset-valuing rules that corporate executives blame for fueling the crisis. The Senate approved the bill Wednesday 74-25.

Sweetening the Pot

The add-ons may help sway lawmakers such as Jim Gerlach, as did phone calls from his suburban Philadelphia constituents. Many of his supporters shifted to backing the bailout following the record 778-point drop in the Dow Jones Industrial Average after the House’s 228-205 defeat of the bill.

The Dow rose 206.37 points, or 2 percent, to 10,689.22 at 10:53 a.m. in New York.

Among those abandoning their opposition were Democrats Shelley Berkley of Nevada and Gabrielle Giffords of Arizona and Republicans Ileana Ros-Lehtinen of Florida, John Shadegg of Arizona and Jim Ramstad of Minnesota. At least three other Republicans, Gerlach and Tim Murphy of Pennsylvania and Patrick Tiberi of Ohio, and Democrat Bill Pascrell of New Jersey, may vote yes on the measure.

Signaling Confidence

House Majority Leader Steny Hoyer and the Republican leadership signaled their confidence in advance that the measure would pass.

“There is a broad feeling that the economy is at risk and that average Americans will be badly hurt if the economy continues to go downhill, and that action is necessary,” Hoyer said.

Minority Leader John Boehner had said the plan wouldn’t come up for a vote until leaders were assured of passage and today predicted approval. Republicans cited the economy as the main reason they were switching.

Shadegg said on Bloomberg Television that he would support the measure, citing a “breakdown” in credit markets that makes it difficult for small businesses to pay employees. Ros-Lehtinen said in a statement she would back the bailout because it boosts Federal Deposit Insurance Corp. limits and adds tax breaks for families.

Company Support

Companies are also pushing Congress to pass the measure, saying the curtailment of credit may result in job cuts.

Automakers said tougher loan standards partly accounted for a 27 percent plunge in U.S. auto sales last month.

The market for commercial paper, short-term borrowing by businesses, suffered the biggest one-week drop on record, the Federal Reserve said yesterday. The amount of commercial paper outstanding fell by $94.9 billion, or 5.6 percent, during the week ended Oct. 1.

Yet the addition of the tax cuts and special breaks for companies such as an Oregon-based maker of wooden arrows and Virgin Islands rum-makers may turn off some deficit-wary Democrats.

Representative Mike Ross, an Arkansas Democrat who supported the original bailout bill, said he didn’t know how the so-called Blue Dog coalition of fiscally conservative Democrats would vote on the version with the Senate’s add-ons.

“I don’t even know what I’ll do,” Ross said.

The extra spending on federal projects is also repelling some Republicans.

Still Opposed

Representative Spencer Bachus, an Alabama Republican who supported the earlier bailout plan, called the Senate version “a travesty,” saying in an interview that he is “strongly considering” voting against it.

As the House prepared to approve the rescue plan, the rate banks charge each other to borrow dollars overnight dropped to 1.996 percent after soaring to 6.875 percent on Sept. 30, the day after the House vote rejecting the earlier bailout proposal.

The London interbank offered rate for three-month loans in dollars, however, rose to 4.33 percent, the highest since January. The Libor rate for three-month euro loans rose to a record 5.33 percent.

The Labor Department reported today that the U.S. lost 159,000 jobs in September, the biggest monthly drop since March 2003. For the second straight month, the unemployment rate was 6.1 percent — the highest level since September 2003.

Yesterday, the department said 497,000 people filed first- time applications for jobless benefits during the week ended Sept. 27, the highest level in seven years.

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