[JURIST] The US House of Representatives [official website] on Friday passed a $700 billion financial rescue bill [HR 1424 text, PDF] that President Bush quickly signed into law [WSJ report]. The House approved the Emergency Economic Stabilization Act of 2008 by a vote [roll call] of 263-171 four days after it defeated an earlier version [JURIST report] of the bill. The final bill authorizes the Department of the Treasury [official website] to establish a Troubled Assets Relief Program (TARP) to purchase troubled assets from financial institutions and to provide insurance and guarantees for any troubled asset originated before to March 14, 2008. "Troubled assets" are defined as residential or commercial mortgages or securities, obligations or other financial instruments based on or related to them. The legislation also gives Treasury Secretary Henry Paulson [official profile] discretion to designate any other financial instrument a troubled asset, with the consent of Congress. After the House passed the bill, President Bush said [statement text]:

A major problem in our financial system is that banks have restricted the flow of credit to businesses and consumers; many of the assets these banks are holding have lost value. The legislation Congress passed today addresses this problem head on by providing a variety of new tools to the government – such as allowing us to purchase some of the troubled assets, and creating a new government insurance program that will guarantee the value of others. The bill also ensures that these new programs are carried out in a way that protects taxpayers. It prevents failed executives from receiving windfalls from taxpayers' dollars. It establishes a bipartisan board to oversee the plan's implementation.

The act establishes a Financial Stability Oversight Board to review Treasury actions taken under the legislation. While allowing courts to set aside actions that are "arbitrary, capricious, an abuse of discretion, or not in accordance with law," the legislation protects the Treasury secretary from any injunctions other than those to remedy constitutional violations. It provides for expedited review of requests for restraining orders or injunctions and automatically stays any equitable relief issued against Treasury secretary for actions pursuant to certain provisions. The act also temporarily increases the amount of deposit insurance provided by the Federal Deposit Insurance Corporation (FDIC) [official website] from $100,000 to $250,000. The New York Times has more. The Washington Post has additional coverage.

After the original bill failed in the House, the Senate on Wednesday approved [roll call] a version that incorporated a number of "sweeteners" to make the legislation more palatable to Democratic and Republican representatives who had opposed it. Among these additions are:

• the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008, which the Senate initially passed [JURIST report] last week.
• extensions of a number of tax credits and incentives, including the renewable energy tax Credit and the New Markets Tax Credit [CDFI backgrounder].
• an extension of taxpayer relief from the alternative minimum tax [IRS backgrounder].
• emergency relief provisions for Americans affected by recent hurricanes and other natural disasters.

Last week, Senate Democrats questioned the legality [JURIST report] of the Bush administration's proposed version of the legislation, which would have precluded judicial oversight of the asset purchases. Led by Sen. Christopher Dodd (D-CT), chairman of the Senate Banking Committee [official websites], the Democrats put forth their own proposal that included the judicial review language. Some observers had expressed concern that the Bush proposal would represent an unconstitutional delegation of the spending powers granted to Congress by Article I of the US Constitution [text].