Bailout Bill Passes; Now for the Hard Part

By a vote of 263-171, the House of Representatives finally passed the bailout bill Friday, and President Bush signed it.

Now comes the hard part: putting the plan in motion and restoring market confidence.

It's not going to be easy. Many important details of the program--including which banks will be the first to sell their troubled assets to Uncle Sam--are still unknown. Meanwhile, the economy is still stumbling along. U.S. The Labor Department reported Friday that 159,000 jobs were lost in September, the biggest drop since 2003.

Meanwhile, the U.S. Treasury Department still has to work out the program's fine details. For instance, it needs to hire a team of consultants and managers to help it figure out how to dole out the $700 billion that will be used to buy toxic assets from companies that can't sell them.

Treasury officials have not responded to inquiries regarding how far along the administration is in that process. Under the program, up to $350 billion could be available immediately (Congress can say no to the remainder). However, White House spokesman Tony Fratto told reporters Thursday that it could be "at least weeks" before the first banks and insurance companies are able to sell their troubled assets.

According to financial services analyst Howard Glaser, Treasury Secretary Henry Paulson already has chosen Ed Forst, an executive from Paulson's old firm, Goldman Sachs, to lead the implementation of the plan. Paulson apparently didn't want to wait for Congress to get the ball rolling. They'll have to proceed quickly but gingerly.

"Continued political support for the effort depends on a 'clean' execution of Treasury's broad new authority," says a research note from the Glaser Group.

The bill has grown considerably since it was first proposed by the administration two weeks ago, but here's what it else it does:

--Provides the government with warrants to obtain an equity stake in companies. This helps ensure that taxpayers share in future gains of companies that are bailed out.

--Limits excessive executive compensation for some companies. Any firm that sells more than $300 million in troubled assets to the government is also subject to more taxes.

--Establishes an oversight board and special inspector general to act as a watchdog.

--Requires the Treasury secretary to regularly report to Congress the details of all financial transactions under the bailout.

--Allows federal agencies to modify troubled mortgage loans.

--Expands the amount of government insurance on individual bank deposits from $100,000 to $250,000.

--Gives the chairman of the Securities and Exchange Commission the authority to suspend mark-to-market accounting and requires the agency to complete a study on the effectiveness of this accounting method.

--Requires the president five years from now to devise a plan to recoup net losses, if there are any.

--Gives companies the opportunity to insure their troubled assets rather than selling them, although this is up to the discretion of the Treasury secretary.

The version of the bill the House approved Friday is what the Senate overwhelmingly passed Wednesday night. It includes tax breaks, disaster relief, clean energy tax incentives and a fix to prevent the alternative minimum tax from hitting more than 20 million additional people in 2008. The added price tag: $110 billion over the next decade.

On Monday of this week, the House squashed the plan, with many lawmakers--mainly Republicans--echoing their constituents' feelings that it was a bailout of Wall Street at the expense of Main Street. After the vote, the Dow Jones industrial average dropped a record 7% in one day. That probably helped change some minds. So did a full-court lobbying press by the president, congressional leaders and some of Washington's most powerful industry groups.

"This legislation is very far from perfect, but it is a necessary start," says Rep. Elijah Cummings, D-Md., one of those switched from a "nay" vote to a "yea."

Both House Speaker Nancy Pelosi, D-Calif., and Republican leader John Boehner of Ohio reminded members of Congress that the action taken Friday is just one component of an economic recovery. "No new deficit spending must be our mantra," said Pelosi.

Boehner appealed to a higher authority, invoking a familiar motto: "Remember those words today: In God we trust. Because we're going to need his help."

Additional reporting by Jewel Edwards.