DanS.

Sep 29th 2008 | WASHINGTON, DC
From Economist.com

The House of Representatives rejects the $700 billion bail-out plan





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IT WOULD have been one of the most unpleasant laws that Congress had found itself writing so close to an election. Devoting $700 billion of taxpayers’ money to rescuing the country’s least popular industry was clearly not a vote winner. That Democratic and Republican congressional leaders held their noses this weekend and came up with the Emergency Economic Stabilisation Act was encouraging evidence that they appreciate the gravity of the financial crisis. But with a vote of 228 to 205, the House rejected it. World stockmarkets promptly slumped. At one point the Dow Jones industrial average had fallen than 700 points, its biggest intraday drop ever. The oil price slumped by $10 to less than $97 a barrel.

The House voted against the bill despite the best efforts of the two candidates to be president. “This is something that all of us will swallow hard and go forward with,” John McCain had said. Barack Obama had added that “What we can't do is do nothing.” As it stood on Monday, that was precisely what the House had chosen to do. The White House issued a statement expressing its severe disappointment and promising to get an economic team together to consider its next steps. It remains possible that the House will vote again. The Senate had been due to vote later in the week.

The bill had been widely expected to pass. Legislators from both parties wrung concessions from Hank Paulson, the treasury secretary, to provide necessary political cover. But voters seemed unconvinced. In a USA Today/Gallup Poll conducted on September 24th just 22% favoured Mr Paulson’s proposal while 56% wanted something different; only 11% preferred that no action be taken.

By legislative standards Congress moved at light speed after Mr Paulson and Ben Bernanke, the Federal Reserve chairman, proposed action on September 18th, warning of serious doom and gloom if nothing were done. In the past week the financial crisis has erupted in even more dangerous forms globally. The interbank-funds market has seized up and even the most creditworthy corporate and financial firms are paying punitive rates. Last week Washington Mutual became the largest-ever American bank to fail. In Europe, three countries had to come to the rescue of Fortis, a Belgian banking group, and Britain did the same with a mortgage lender, Bradford & Bingley. And on Monday Citigroup agreed to buy most of the assets of Wachovia, another beleaguered American bank, in a deal brokered by regulators.

The new law would have provided the Fed with an additional tool for combating the latest stage of the crisis: from October 1st it would have paid interest on reserves that banks maintain at the Fed. This would have let it pump almost unlimited cash into the money market without fear of interest rates falling to zero, Japanese-style.

Mr Paulson or his successor would have been given $250 billion immediately, $100 billion more at the president’s discretion and $350 billion upon Congress’s approval. The Troubled Asset Relief Programme, or TARP, would be allowed to buy mortgage-backed securities, whole loans (those not bundled into pools) and, in consultation with the Federal Reserve chairman, anything else necessary to stabilise the financial system. That includes taking control of entire companies. Mr Paulson said on Sunday that would get the power to avert “the potential systemic risk from the disorderly failure of a large financial institution,” implying the ability to bail-out a company while punishing its owners, as was done with Bear Stearns, Fannie Mae, Freddie Mac and AIG. Given the frequency with which institutions are collapsing, he would have been keen to invoke that power soon.

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DanS.

I wish I were as happy as you. I want to be happy about this. But I cannot be happy about this even though its failure falls closer in line with my ideologies.

julia

Just say NO to corporate welfare.

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DanS.

It isn't welfare....when's the last time you saw any welfare recipient forfeit a large percentage of their assets to the govt. for a check? When's the last time anybody had to pay the govt. over 11% interest for the welfare check.....never. This is bigger than your ideology or hate for wall street. This is going to affect you and everybody else here personally, in a big way....

guest1234567

It's socialism; poorly executed socialism, but socialism all the same. Capitalism has its risks, "These investments are not insured by the FDIC, be sure to read the prospectus before investing."

I'm afraid to look at my 401k right now, but there are a lot of people who made a lot of money off of regular people who deserve to reap the pitfalls as much as "they" thought they deserved to reap the gains.

DanS.

Call if what you want, but it's not about the companies themselves or the return on investments. It's about credit drying up, companies failing and a downward spiral of less credi and more unemployment from there on out....I could give a rats ass if the companies themselves fail. I do care about a depression like scenario more than I care about my dislike for bailing out companies.

ibex

Lest anybody here think that Congress has suddeny found a sense of fiscal responsibility, take a look at this. http://www.nationalpriorities.org/co..._counter_notes A war based on lies has cost us about 65% of the 700 billion that they're looking for now to bail out the thieves who've bombed our economic future into the stone age. This will bode worse for John "Maverick" McCain, since his grand standing last week looked so transparent. Even if they strike a deal before the week is out, he won't be able to take credit for it in the eyes of the people who want a quick resolution and he'll come off as a sellout to opponents of any deal. It's a split within the GOP rank and file so McLame loses either way.

DanS.

War should be ended.

guest1234567

Credit being given away so freely is what caused this. Greed clouded the vision of these companies. There has already been less credit going around. Small businesses haven't had a leg up in a while. But eventually the lending institutions will realize that there are people and businesses who qualify for loans and they will start lending again.

And I would be willing to bet dollars to donuts that if there is a bailout later this week, or next, it will make no difference. The lending has already ended. A bailout will make no difference to anyone but the investors of the companies being bailed out.