Dark Star

Both House and Senate have been at work today to create an alternative bailout bill after the modified Paulson plan went down in a surprising House vote Monday. With both liberal and conservative members (and constituents) rejecting the biggest government bailout of private industry in history, neither party's leadership was able to whip enough people into acquiescence. The Dow tumbled more than 700 points Monday afternoon, but regained several hundred Tuesday.

The new bailout bill, originating in the Senate, will be attached to a tax-break extender, and will require 60 votes to pass instead of a simple majority. The high threshold was part of the deal for getting it to the floor on Wednesday, according to reports.

The House has already rejected the energy and business tax breaks this new version of the bailout will be attached to, but the Senate is also set to add important AMT relief, which would be palatable for both House Dems and Republicans.

The new version of the bailout is also said to include an increase in the FDIC cap, from $100,000 to $250,000, and possible reforms to "mark-to-market" rules, which "require banks and other financial institutions to adjust the value of their assets to reflect current market prices, even if they plan to hold the assets for years."

House Republican leader John Boehner has already said he backs the new bill, the text of which is not available in any form yet, as far as I can tell:

"He (Boehner) was consulted on it and gave it the green light," [a spokesman) said of the measure that the Senate intends to consider on Wednesday.

Some of the tax relief, however, has House Democrats iffy:

But Senate leaders attached the measure to a package to extend business and energy tax breaks that a number of House Democrats have opposed, which could imperil votes there after Monday's narrow defeat of the original bill.

House Republicans leaders quickly embraced the revised package, while House Democratic leaders issued cautious statements.

Nancy Pelosi, utterly useless as usual, had this enlightening quote to offer:

House Speaker Nancy Pelosi of California said House Democrats remained "strongly committed to a comprehensive bill that stabilizes the financial markets, restores confidence, and protects taxpayers, and we hope Congress can agree on legislation in the very near future."

Leadership.

McCain and Obama will return for the vote.

CNBC has a run-down of possible inclusions in the alternative bailout bill. This list was crafted by House Republicans, so it's unclear how much of a shot any of this has of getting in a final Senate version, even if the House and Senate are working closely.

* Require the Treasury Department to guarantee, at up to 100 percent, bank losses resulting from failed mortgage-backed securities originated prior to the plan's enactment. Such insurance, supporters say, would provide immediate value to the securities and a foundation for which they could then be sold. The Treasury Department would finance that insurance by assessing a premium on outstanding mortgage-backed securities.
* Allow companies to carry back losses arising in tax years ending in 2007, 2008, or 2009 back five years, generating a tax refund and immediate capital
* Allow a "repatriation window" for profits earned by U.S. firms overseas. Such repatriation amounts would not be taxed if invested in distressed debt (as defined by Treasury) for at least one year.
* Allow banks to treat losses on shares of preferred stock in Fannie Mae and Freddie Mac as ordinary losses, not as capital losses
* Suspend the capital gains tax rate for two years
* Limit backing of high-risk loans by Fannie Mae and Freddie Mac
* Schedule Fannie and Freddie for privatization
* Suspend "mark-to-market" accounting until the SEC can issue new guidelines that will allow firms to mark these assets to their true economic value
* Stabilize the dollar by repealing the Humphrey-Hawkins Full Employment Act, which alternative bailout supporters say diverts the Federal Reserve's attention from long-term price stability to short-term economic growth
* Require the Treasury to write rules prohibiting excessive compensation or golden parachutes to executives of failed companies
* Task the SEC with regular, annual audit reports of entities the federal government has brought under conservatorship or now owns

The bill should be available in its final form for members and the public before a vote is taken, but I have my doubts. I'll keep you updated. Voting is set to start at 7 p.m., with a vote on the bailout around 9 p.m.