Senate leaders who backed Wednesday's bill described it as much improved over the original.
"This is not a bailout for Wall Street, it's a bailout for our country," Senate Majority Leader Harry Reid said.
But Democratic Rep. Peter DeFazio said the big problems with the bill remain, mainly that it is designed to benefit Wall Street firms while ignoring the deeper economic problems plaguing the U.S.
"Talk about lipstick on a pig," DeFazio said. "They added some tax cuts so Republicans would vote for it, and added [a health provision] so that progressives and liberals would pay for it. But, it's the same flawed plan that the House defeated earlier this week."
The bill now includes tax breaks and funds for projects individual lawmakers asked for, and are used to entice them into voting for the bill.
A 2-million-dollar tax break is given to an Oregon manufacturer of toy wooden arrows, and a 100-million-dollar break is given to racing car tracks, and a 192-million-dollar tax break on rum imported to the states from Puerto Rico and the Virgin Islands, according to an analysis by Taxpayers for Common Sense, a private watchdog group.
"There is not one bit of assistance in this package for homeowners struggling to make ends meet. My constituents don't understand that, and neither do I," said Sen. Ron Wyden, in casting his vote against the bill.
A look at the Senate bill shows that it includes a large loophole that would still allow excessive CEO compensation and multi-million-dollar golden parachute packages to retiring CEOs. It offers no funds to help homeowners facing foreclosure, and does not include permission for local judges to make changes in bad mortgages when people come to court in foreclosure.
The treasury secretary is granted wide discretion to disperse the funds to those firms that need it. In addition, Wall Street firms would be hired to help disperse the money, and federal contracting rules will not be enforced in hiring them.
In terms of oversight, the treasury would report to a new Congressional board and be audited by the Government Accountability Office.
Bank accounts up to 250,000 dollars would be insured, instead of the 100,000 dollars today.
Independent Sen. Bernie Sanders tried to convince his colleagues to tax millionaires as a way to pay for the bailout. Many senators, however, are millionaires and the amendment failed.
"Most of my constituents did not earn a 38-million-dollar bonus in 2005 or make over 100 million dollars in total compensation in three years, as did Henry Paulson, the current secretary of the treasury, and former CEO of Goldman Sachs," Sanders said.
DeFazio expressed concern that the bill is misguided, and said he and other House progressives will offer an alternate plan, if allowed to by Speaker Nancy Pelosi who will control the House debate.
"Economic analysts noted yesterday that the credit markets around the world were almost entirely dysfunctional even when political leaders and investors assumed that Congress had reached a deal and would easily approve the bailout. There is no reason to believe Paulson's plan will work," DeFazio said.
The progressives will be going up against conservative House Republicans, who originally voted against the plan because of its cost.
William Frenzel, a former congressman, said the Senate bill was changed to appeal to conservatives and it will be changed further in the House to appeal to far right Republicans there.
"They don't seem able to move to the left. They have already moved it to the right," he said. "The House bill will win a handful of Democrats but mostly Republicans," he predicted.
While the House readied for Friday's debate, financial indicators pointed to a troubled economy. The fickle Dow Jones industrial average dropped 348 points by Thursday's end on the news that factory orders were down and that jobless claims for August were the highest in seven years.
Fears deepened that some European nations may be headed for recession and bank credit problems related to the U.S. mess.
Earlier Thursday, Pres. George Bush implored the House to "get this bill passed so we can get about the business of restoring confidence" in the U.S. economy.
Many citizens still oppose the bill, and are flooding the Congress with emails and calls. However, lawmakers are reporting more calls from people who are scared by the prospect of a depression, and are in favour of the bailout.
"They're for the bailout bill now only because they fear that a failure to pass it will have worse consequences," says Robert Reich, an economist and former secretary of labor.
"Angry populism has always been a potent force in American politics. And now, with wages dropping, jobs insecure, fuel and food and health-insurance costs soaring, and millions of homes in jeopardy -- and what's perceived to be a massive taxpayer bailout of some of the richest people in the land -- angry populism is about to explode," Reich wrote this week.
Bush and Paulson, who started referring to the bailout as a "rescue plan," with the media and Democrats following suit, say the bill is needed to stimulate the biggest banks, which are not readily lending each other money because they fear each other's credit worthiness.
During the past few years, the banks made billions by investing in risky financial products created from bundles of mortgages, including mortgages with excessively high interest rates and unfair terms. The mortgages were peddled to consumers in the absence of strong consumer protection rules. Millions of homeowners could not meet the high rates, and are defaulting. Many banks now hold high debt, estimated in the billions, and millions of people have lost their homes.
The $700 billion would be used to buy up the risky financial products, even though their true value is not yet known.
"Over the last six years our system became a house of cards, based on the endless over-leveraging of each dollar through the use of financial instruments so complex and illusory that it turns out no one even knows their value -- the infamous credit default swaps that were nearly 1 trillion dollars in 2001 and now amount to 62 trillion dollars," says Harvey Rosenfield, the founder of Consumer Watchdog, an activist group.
This week a 300-billion-dollar program got underway to help about 400,000 homeowners in foreclosure. To qualify, borrowers must be spending more than 31 percent of their income on their mortgage. Millions more foreclosures are expected in the next three years.
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