Bailout Bill Passes!

Late Friday, the House voted 263-171 to pass the $700 billion bailout for the financial sector by a comfortable margin, just days after rejecting an earlier bill, capping one of the most unsettling weeks in Wall Street history. Reports from Congress had markets guessing up to the final minutes before the vote.

What changed:

Congress got an earful. Swooning markets and angry constituents lined up to back an imperfect plan imperfectly, if earnestly, offered up by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. From the NYTimes:

Many lawmakers who changed sides, said they had agonized over the decision amid a torrent of calls and e-mail messages from constituents, and several cited a provision added by the Senate increasing the amount of savings insured by the federal government to $250,000 per account from $100,000.

That FDIC insurance increase, remember, makes the bailout a little bigger. It's a sort of bailout too, only this time the biggest beneficiaries will be smaller banks who hold more deposits rather than mortgage-stuffed investment banks.

Which brings us to the other reason the wheels were greased for a different outcome this time:

Pork. Legislators who originally blocked the bill argued that $700 billion was an absurd amount, picked somewhat arbitrarily by the Treasury, and too incomprehensible to vote for willy-nilly. Then they added on anther $150.5 billion in tax breaks and other extras, and somehow the number seemed just about right.

A failure to pass the bill would have been devastating for markets. The first failure Monday sent the Dow down 777 points for its single biggest drop since the 1987 crash.

What's next: Now, we move to a less dramatic but equally important phase of sorting out the credit crisis. Treasury gets to buy up $700 billion in bad assets held by investment banks and put a value on them. The biggest unanswered question is exactly what that will be. If the price it sets is deemed too low, more banks will swoon. If Treasury overpays, the bailout really does become a gift to fat-cat banking executives bought with taxpayer money. Expect blame to fly in both directions as the plan unfolds.

Best of luck.