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Bailout blues: What's next? Lawmakers Scramble To Modify Package Increase sought in amount of FDIC-insured deposits

Amid signs of tightening credit and outrage from a deeply divided public, federal lawmakers Tuesday kept pressing for a compromise plan that would rescue the teetering financial system and would be palatable to a majority of House members.

Key to that compromise could be an increase, from $100,000 to $250,000, in the amount of bank deposits that the federal government would insure. Both major-party presidential candidates pushed for that change, as the head of the agency that guarantees bank deposits asked Congress for an increase.

In a surprise development, Senate leaders set a vote for today on a rescue plan that included the increase in bank deposit insurance but added a tax-cut plan the House already rejected.

Senate Majority Leader Harry Reid, D-Nev., and GOP Leader Mitch McConnell of Kentucky unveiled the plan Tuesday. The tax-cut plan, which passed the Senate last week, included a provision to prevent more than 20 million middle-class taxpayers from feeling the bite of the alternative minimum tax and other tax cuts and extensions affecting storm victims and energy conservers. In a compromise worked out with Republicans, the bill does not pay for the AMT and disaster measures but does have revenue offsets for part of the energy and extension measures.

But that wasn't enough for the House, which insisted that there be complete offsets for the energy and extension parts.

Meanwhile, lawmakers -- who had been inundated with calls and e-mails from voters opposed to the bailout just days ago -- said they were getting calls from businesses suddenly starved of credit and from voters worried that inaction was killing their investment portfolios.

"We have thousands of people I'm hearing from around our state who cannot get the credit they need to stay in business," said Sen. Hillary Rodham Clinton, D-N.Y. "We'll see the unemployment rate go up, and I am deeply concerned that this package be passed this week in order to put the brakes on what is not just a market and a credit crisis but a mounting economic crisis."

A day after renegade Republicans and Democrats in the House defied their party leadership to defeat a $700 billion rescue plan, lawmakers began the work of tweaking it and selling it to reluctant colleagues and constituents.

Making the job more difficult, though, was a Wall Street rebound that saw the Dow Jones industrial average gaining 485 points.

Clinton and other supporters of the $700 billion rescue plan insisted that quick action was necessary. She said a New York homebuilder had called her to say he had to lay off 2,000 people because of the crisis.

Other lawmakers said more voters were calling to say the economic crisis was now affecting them personally. "It's a total turnaround from a few days ago," said Rep. Louise M. Slaughter, D-Fairport. "I think that what's most important is that everybody understand this is not just affecting fat cats on Wall Street. It's affecting kids getting college loans, people paying their mortgage, and it could affect your job."

Rep. Brian Higgins, D-Buffalo, said more constituents were calling his office to express concerns about their savings and retirement accounts.

Meghan Tisinger, a spokesman for Rep. John R. "Randy" Kuhl Jr., R-Hammondsport, said the vast majority of callers to Kuhl's office remained opposed to the bailout, although some constituents said they were worried about their retirement savings or the credit industry.

Amid such concerns, Kuhl pushed for a compromise rescue plan only a day after voting against the original bill.

"The consequences of inaction are unmistakable and grim," said Kuhl, who has been advocating a bill that would put more of the burden of the rescue on the private sector.

Both Sens. Barack Obama of Illinois, the Democratic presidential nominee, and John McCain of Arizona, his Republican opponent, announced their support for increasing the limit on federally insured bank deposits to $250,000.

House Republican Leader John A. Boehner of Ohio praised that idea, and Federal Deposit Insurance Corp. Chairman Sheila C. Bair asked Congress for temporary authority to raise the limit by an unspecified amount.

Rep. Thomas M. Reynolds, R-Clarence, agreed that the public needs to take a different view of the financial plan. "We have to get to the point where the public has some real understanding of what's at stake here," said Reynolds, who voted for the failed bill.

"For most people at first, this was all about Wall Street. But as time ticks on and people get more educated, they can see that this is a crisis our nation has to face."

House Democratic sources said the bill that failed by a 228-205 vote was being fine-tuned and could be brought up for another vote Friday.

Besides the change in deposit insurance, the revised bill could include a provision easing some bank accounting rules that, according to Republicans, forced lenders to report their mortgage-backed assets to be worth far less than they will be once the financial storm passes.

Even before the completion of a revised bill, politicians from both parties were pressuring the rebellious lawmakers into voting for it.

"I recognize this is a difficult vote for members of Congress," President Bush said. "But the reality is, we are in an urgent situation and the consequences will grow worse each day if we do not act."

Clinton agreed: "My message to my constituents is, I'm holding my nose and voting for this because of you, because I want Main Street, I want Court Street, I want Clinton Avenue, I want all the places around New York not to suffer."

Associated Press contributed to this report.

-mail: jzremski@buffnews.com

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