That’s not to say Majority Leader Harry Reid (D-Nev.) won’t try again, however. Democrats feel the political momentum is on their side and may very well keep raising the issue between now and midterm elections in order to press their advantage.

UPDATE: Fox News initially reported that Sen. Lieberman was attending a friend’s funeral. They have issued a correction that states it was actually a family member’s funeral. This blog post has been updated to reflect that change.

From the Energy and Commerce Committee’s press release:

Under the agreement, consumers may trade in their old, gas-guzzling vehicles and receive vouchers worth up to $4,500 to help pay for new, more fuel efficient cars and trucks. The program will be authorized for up to one year and provide for approximately one million new car or truck purchases. The agreement divides these new cars and trucks into four categories. Miles per gallon figures below refer to EPA “window sticker” values.

· Passenger Cars: The old vehicle must get less than 18 mpg. New passenger cars with mileage of at least 22 mpg are eligible for vouchers. If the mileage of the new car is at least 4 mpg higher than the old vehicle, the voucher will be worth $3,500. If the mileage of the new car is at least 10 mpg higher than the old vehicle, the voucher will be worth $4,500.

· Light-Duty Trucks: The old vehicle must get less than 18 mpg. New light trucks or SUVs with mileage of at least 18 mpg are eligible for vouchers. If the mileage of the new truck or SUV is at least 2 mpg higher than the old truck, the voucher will be worth $3,500. If the mileage of the new truck or SUV is at least 5 mpg higher than the old truck, the voucher will be worth $4,500.

· Large Light-Duty Trucks: New large trucks (pick-up trucks and vans weighing between 6,000 and 8,500 pounds) with mileage of at least 15 mpg are eligible for vouchers. If the mileage of the new truck is at least 1 mpg higher than the old truck, the voucher will be worth $3,500. If the mileage of the new truck is at least 2 mpg higher than the old truck, the voucher will be worth $4,500.

· Work Trucks: Under the agreement, consumers can trade in a pre-2002 work truck (defined as a pick-up truck or cargo van weighing from 8,500-10,000 pounds) and receive a voucher worth $3,500 for a new work truck in the same or smaller weight class. There will be a finite number of these vouchers, based on this vehicle class’s market share. There are no EPA mileage measures for these trucks; however, because newer models are cleaner than older models, the age requirement ensures that the trade will improve environmental quality. Consumers can also “trade down,” receiving a $3,500 voucher for trading in an older work truck and purchasing a smaller light-duty truck weighing from 6,000 – 8,500 pounds.

Environmentalists will most likely be disappointed by this compromise, which draws on two competing bills. The weaker of the two original bills, sponsored by Rep. Betty Sutton (D-Ohio) and preferred by the auto industry, required that the new vehicle get at least 27 miles per gallon, while the bill favored by environmentalists mandated that the new vehicle be at least 25 percent more fuel efficient than the average vehicle in its class.

But according to standards imposed by the Department of Transportation in March, the average efficiency for cars and light trucks in 2011 will be 27.3 mpg. This compromise bill requires that a car get just 22 mpg in order for its new owner to receive a $3,500 voucher.

The clear winner in this arrangement is the auto industry, which will likely see its sales rise as people take advantage of the new incentives. The environment, it appears, will have to content itself with a distant second place.

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Yet the plan has come under some criticism, the basic thrust of which appears to be that it might be too successful.

Some environmentalists have argued that by spurring new car production, it could actually lead to higher carbon emissions, rather than reducing emissions as intended, since 10 to 20 percent of a car’s lifetime emissions come from its manufacturing. Still, with Detroit on its knees and many thousands of Americans out of work, few would argue that stimulating the auto industry would be a bad thing, particularly if it’s producing more fuel-efficient vehicles. There may be merit to this line of reasoning, but it’ll never fly in Congress or with the public at large.

Other critics point to the example of Germany, where a similar cash-for-clunkers program was so popular (car sales rose 11.9 percent in February, as they fell just about everywhere else in the world) that it cost the government three times the anticipated price tag. Sure, Berlin might have to scrounge a bit to come up with the extra 3 billion euros (roughly $4 billion). But if we can turn around Detroit with just a few billion dollars, none but the fiercest deficit hawks will complain — particularly when we’ve already spent over $17 billion trying to do just that, and could end up shelling out as much as $130 billion.

Now, there are some legitimate causes for concern, such as the potential impact of cash-for-clunkers on used car dealerships. Still, with the auto industry in such perilous straits, it’s hard to turn down the prospect of a program that can simultaneously encourage fuel efficiency and improve the long-term health of Detroit.

Sen. Chris Dodd (WDCpix)

Voluntary mortgage-reduction programs are insufficient to curb the spreading blight of national foreclosures, the head of the FDIC said Thursday, and the federal government should step in to help folks keep their homes.

The Bush administration and the finance industry have long resisted proposals forcing lenders to modify the terms of mortgage loans. But appearing before a Senate panel, Shiela C. Bair, chairwoman of the Federal Deposit Insurance Corp., said that leaving those renegotiation decisions to the banks has failed to solve the foreclosure crisis.

“Some of the voluntary efforts have helped,” she said during testimony before the Senate Banking Committee, “but they have clearly not helped enough.”

Illustration by: Matt Mahurin

Asked by Sen. Charles Schumer (D-N.Y.) if there is “any hope for a voluntary model” of mortgage write-downs, Bair responded without hesitation. “No,” she said. “There needs to be a package of carrot-and-stick incentives.”

Supported by housing advocates, congressional Democrats have long pushed for new rules allowing bankruptcy judges to force lenders to renegotiate the terms of primary mortgages — a power those judges currently have to alter loans for second residences, like vacation homes, and virtually all other types of debt. Bair said the FDIC has not taken a position on the bankruptcy proposal, but Washington must do something to protect homeowners and bring stability to the sinking housing market.

Sen. Christopher Dodd (D-Conn.), chairman of the Banking Committee, said during the hearing that he will take another shot at passing such reforms, perhaps as early as next month.

Under the $700-billion financial bailout bill enacted Oct. 3, the Treasury Dept. must craft a plan to prevent foreclosures. The legislation also authorizes — but does not require — the agency to encourage mortgage modifications through federal loan guarantees and credit enhancements.

FDIC Chairwoman Sheila Bair (FDIC.gov)

Bair recommended that the Treasury take advantage of that optional authority. “The government could establish standards for loan modifications and provide guarantees for loans meeting those standards,” she said. “By doing so, unaffordable loans could be converted into loans that are sustainable over the long term.” She said the FDIC is working closely with the Treasury Dept. to craft such a plan.

Neel Kashkari, the Treasury Dept.’s Interim Assistant Secretary for Financial Stability, would not immediately endorse the strategy, saying only that the agency is exploring those options. The administration’s plan, Kashkari added, will be unveiled within “a few weeks.”

The comments arrive as the focus of Washington’s financial rescue strategy shifts from a massive bailout of the finance industry to the rising tide of struggling homeowners. Lawmakers and Bush administration officials have, in recent months, committed $30 billion to catalyze the takeover of Bear Stearns; fronted more than $120 billion to take over American International Group; pledged $200 billion to prop up Fannie Mae and Freddie Mac; and enacted a $700-billion bailout of Wall Street designed to thaw out frozen credit markets. But they have as yet done little to help homeowners facing foreclosures.

Those industry-focused actions, many experts agree, were necessary to buoy the sinking financial system. But without addressing the underlying issue of foreclosures, many contend, the troubles will only fester. Dodd said that Washington’s efforts up to now “have largely addressed the symptoms of the credit crisis rather than its cause.”

“The longer we allow foreclosures to erode family wealth, neighborhood stability and financial market liquidity,” Dodd said, “the longer our economy will take to recover from this crisis.”

In that diagnosis Dodd has significant support from across the aisle. Sen. Richard Shelby (Ala.), the highest-ranking Republican on the Banking Committee, agreed that lawmakers need to turn their attention to the housing crisis.

“Unless we do something, or can do something, to address the underlying fundamentals of dealing with the mortgage foreclosures in real estate,” Shelby said, “we’re going to be wasting, perhaps, a lot of money.”

Dodd said he hopes to push mortgage-modification reforms as early as mid-November, when the Senate is slated to return to Washington for a lame-duck session. “We’ve come to the point, once again, where I think legislatively, we have to try this,” he said.

The Democrats will likely have a tough road ahead. Many Republicans, already frustrated after being forced to swallow the Wall Street bailout, have a long history of opposing direct federal intervention in mortgage negotiations. They argue that such efforts — aside from encroaching on free markets — would hike mortgage rates for everyone.

Then there’s the financial-services industry. Though Democrats are widely expected to pick up seats in both the House and the Senate in November, the powerful finance lobby has, historically, held remarkable sway over legislative decisions. Indeed, no other business sector donates more to Congress. In the current election cycle alone, the finance, real estate and insurance industries have given $373 million to federal candidates and political parties, according to the Center for Responsive Politics, a campaign-finance watchdog group.

Congressional inaction, however, might not be an option. Foreclosure filings for the third quarter of 2008 totaled nearly 766,000 — a 3-percent increase over the quarter before, and a 71-percent jump over the 2007 figure, according to Realty Trac, an online foreclosure database.

Some lawmakers maintained that banks are doing too little to keep those numbers down, and in some cases are exacerbating the problem. Sen. Robert Menendez (D-N.J.) relayed the tale of a New Jersey homeowner facing foreclosure on a $175,000 home. With the help of a community group, the homeowner offered $160,000 to the lender, who turned down the offer. When the community group went to the foreclosure sale to pay the full $175,000, Menendez said, the bank bid the price up $5,000 higher.

“We can no longer sit back and hope that lenders do the right thing,” Menendez said.

The foreclosure mess has rippled through the rest of the economy. Lack of investor confidence has sent stock markets fluctuating wildly. Consumers, without access to home equity, are spending much less on retail goods. On Wednesday, Wachovia announced a $23.9 billion third-quarter loss — the largest bank loss since the financial meltdown began. And Thursday, as Kashkari, a former Goldman Sachs vice president, was testifying before the Senate panel, Goldman announced that it will slash 10 percent of its workforce.

Foreclosures were not the only topic of contention during Thursday’s hearing. Many lawmakers are also concerned about how the Treasury Dept. plans to ensure that those banks getting help under the bailout package actually lend the cash, rather than just hoarding it.

“Why,” Shelby asked, “did Treasury not attach a requirement to increase lending as a price for receiving the government money?”

Kashkari, charged with implementing the rescue plan, replied that the department “didn’t want to be in a position of micromanaging our banks.” He argued that certain contractual prohibitions — like one preventing participating banks from hiking dividend payments to shareholders — would nudge the institutions in the direction of lending.

There were other suggestions. Schumer urged Kashkari to adopt non-binding guidelines to steer the process. Among these guidelines, Schumer said, the agency should set lending goals for participating banks to prevent hoarding; push for stricter limits on executive compensation; adopt a streamlined approach for loan modifications to prevent foreclosures, and discourage banks from making the same risky investments that led to the crisis.

“We aren’t investing in these institutions,” Schumer said, “just to see the financial wizards go back to playing their high-stakes game.”

Without committing to guidelines, Kashkari said the administration hopes to have $250 billion “out the door” and to the banks by year’s end. Only time will tell how effectively the 35-year-old manages that spending — which represents a high-stakes game all its own.