Senate passes bailout, returns it to House ECONOMY IN TURMOIL Bill passes overwhelmingly with support from Obama, McCain, Boxer, Feinstein

WASHINGTON - OCTOBER 1: (L-R) Senate Banking Committee Chairman Sen. Chris Dodd (D-CT), Sen. Max Baucus (D-MT), Senate Majority Leader Sen. Harry Reid (D-NV), Sen. Judd Gregg (R-NH) and Senate Minority Leader Mitch McConnell (R-KY) participate in a news conference as the financial rescue bill passed in the Senate at the U.S. Capitol October 1, 2008 in Washington, DC. The U.S. Senate passed the revised version of the financial rescue plan that failed to pass in the House of Representatives on September 29. (Photo by Mark Wilson/Getty Images) less WASHINGTON - OCTOBER 1: (L-R) Senate Banking Committee Chairman Sen. Chris Dodd (D-CT), Sen. Max Baucus (D-MT), Senate Majority Leader Sen. Harry Reid (D-NV), Sen. Judd Gregg (R-NH) and Senate Minority Leader ... more Photo: Mark Wilson, Getty Images Photo: Mark Wilson, Getty Images Image 1 of / 5 Caption Close Senate passes bailout, returns it to House 1 / 5 Back to Gallery

In a somber and rare demonstration of bipartisan unity, the Senate voted 74-25 on Wednesday for a $700 billion rescue of the nation's banking system - loaded with $150 billion in tax breaks - and sent it back to the House for a second chance on Friday.

Senators, including both presidential candidates, Democrat Barack Obama and Republican John McCain, remained seated during the vote, a symbol of the weight they placed upon the stupendously expensive emergency bailout and the votes they cast in the face of intense public opposition just five weeks before an election.

The vote united some of the Senate's most liberal Democrats and conservative Republicans, both in assent and dissent. Obama and McCain both voted for the bill.

Obama, a junior senator from Illinois but now the hope of his party, spoke during the daylong debate and gave House Democrats still in opposition a strong shove.

"To Democrats and Republicans who've opposed this plan," Obama said, "I say step up to the plate, let's do what's right for the country at this time, because the time to act is now."

McCain did not arrive in time for the debate and, when he entered the chamber, walked past Obama without acknowledging him. Several minutes later, Obama strode to where McCain was talking with his friend Joe Lieberman, independent-Conn., and held out his hand in greeting. McCain gave a curt, frigid shake back and instantly looked away. In the clubby world of the Senate, it was an unmistakable rebuff.

Senate Majority Leader Harry Reid said he would not have called for a Senate vote had he not thought the legislation would clear the House, where its spectacular failure in a tense vote Monday stunned House Speaker Nancy Pelosi and Republican leader John Boehner of Ohio and sent leaders in both chambers and the White House scrambling.

"The Senate came together tonight in bipartisan fashion," Reid said, "and sent a clear message to America, to all Americans, that we will not let this economy fail."

Republican leader Mitch McConnell of Kentucky said the vote showed the Senate "at its finest," saying he could not recall a time this close to an election when so many "resisted the temptation to play partisan games" and instead "rose to the occasion."

The vote reflected the conviction now shared by the nation's top political leaders that the financial system is on the brink of a collapse that would be followed by a deep economic contraction and the loss of millions of jobs.

House approval expected

Some senators predicted that the House will approve the bill easily on Friday after the political kickstart from the upper body.

Sen. Max Baucus, D-Mont., said the tax provisions will "clearly" aid House passage, predicting a big vote there on Friday.

The popular tax breaks had already cleared the Senate, 93-2, but had been blocked in the House by conservative Democratic budget hawks who call themselves Blue Dogs. They have protested the fact that only $43 billion of the tax breaks were offset by spending cuts or other tax increases. And only half of them voted for the banking system rescue Monday, mainly on budget grounds.

The agreement was reached after a day of behind-the-scenes phone calls among Pelosi, Reid, the White House and GOP leaders.

Rep. Ellen Tauscher, a Walnut Creek Democrat who co-chairs the centrist New Democrat coalition in the House and is close to the Blue Dogs, said she believes the legislation will pass the House.

Tauscher warned that the credit crunch is "a catastrophic emergency" and said this is not the time to oppose the intervention on budget grounds.

Reid said speed is of the essence.

"Inaction is not an option we have," he said.

Tax breaks

The added tax breaks include a one-year fix of the alternative minimum tax to shield millions of upper-middle-income taxpayers from a big tax increase; tax breaks for wind, solar and other alternative energy projects; and an extension of the research and development tax credit for businesses. The energy and research tax breaks have been pushed heavily by Silicon Valley companies that see alternative energy as the next technological frontier.

A temporary increase from $100,000 to $250,000 in bank deposit protection by the Federal Deposit Insurance Corp., endorsed by both presidential candidates, also was added. The higher FDIC limit was a key demand of House Republicans and was favored by many Democrats. Two-thirds of House Republicans voted against the bill Monday. Republicans said many would be assuaged by a planned relaxation by the Securities and Exchange Commission of the "mark-to-market" rule that requires companies to write down their assets to current value. Republicans argued that the rule was forcing financial institutions to write down their capital to fire-sale prices, accelerating the credit contraction.

Some senators facing difficult re-election bids voted for the bill, such as Sens. Norm Coleman, R-Minn., Gordon Smith, R-Ore., and John Sununu, R-N.H. Others, including Sens. Elizabeth Dole, R-N.C., and Mary Landrieu, D-La., voted no. Dissenters included a mix of the very conservative and very liberal, mirroring the unusual unity of ideological opposition on the flanks of both parties.

Panic in Europe

The action came as the banking panic spread to Europe. The government of Ireland stepped in Tuesday to guarantee its entire banking system, including all bank deposits, securities and short-term loans, an amount equaling twice the country's entire gross domestic product. In relative terms, that intervention swamps the shocking size of the U.S. rescue package. A similar guarantee in the United States would amount to a $24 trillion.

Several senators said major businesses in their states had warned them that a sharp contraction in bank lending even to long-time customers was pushing many of them toward failure and a threat of cascading job losses. Pelosi's office issued newspaper clippings describing business distress.

California Sen. Barbara Boxer, a Democrat, issued a scathing indictment of the Bush administration and promised a regulatory crackdown, but said she reluctantly supported the bill, citing warnings from California Treasurer Bill Lockyer that without action, the state would be unable to sell voter-approved highway, school and water bonds. Boxer said California also relies on short-term bank borrowing to finance its budget.

"I've heard from people who are very worried," said California Sen. Dianne Feinstein, also a Democrat. "Once the snowball begins to roll, it picks up snow, and it's irreversible. I'm not going to say who, but the answer is yes."

Feinstein has supported the bailout in the face of overwhelming public opposition in California. She said she has received 82,500 calls and letters against the legislation and 5,000 for it. That began to shift after the 777-point drop in the stock market Monday when the House rejected the bailout. "They saw the market drop, they looked at whatever they had," Feinstein said.

Added to the bill Sweeteners tacked onto the bailout measure to attract votes from certain constituencies include: Business aid: Provide business tax breaks, including some for production of, investment in and the use of renewable fuels. AMT protection: Increase personal credits against the alternative minimum tax, shielding more than 20 million taxpayers from the tax. Disaster relief: Grant natural disaster victims tax relief. Rural help: Extend through 2011 a program that funds rural schools and local governments that have low property-tax bases because they lie within or are adjacent to federal lands. Tax deductions: Extend until the end of 2009 the deduction for state and local general sales taxes. Tax breaks: Extend until end of 2009 individual tax breaks, including deductions for higher education costs and teachers' personal expenses. Bank insurance: Increase, from $100,000 to $250,000, the limit on federal bank deposit insurance. Source: Associated Press