US House Votes Down Bailout Bill, DJIA Closes Down 777.68 Points
CafeSentido.com :: With the nation facing its worst financial crisis since the Great Depression, and voices in private finance calling for a major bailout, with the Republican president, his financial advisers, leaders of both parties in Congress calling for a $700 billion bailout package, the US House has voted down the rescue package. The stock market closed with the Dow Jones Industrial Average down 777.68 points. Talks of a “done deal” are obviously over, and the administration and Congressional leaders will now be starting over.
Sen. Barack Obama reacted to the no-vote and the market decline, urging: “Democrats, Republicans, step up to the plate, get it done, and understand that even as you get it done to stabilize the markets, we have more work to do to make sure that Main St. is getting the same help that Wall St. is getting”. John McCain had spent the midday attacking his opponent, claiming that while he worked to get a “compromise” Obama was trying to avoid injecting himself into the debate too visibly.
Treasury Sec. Henry Paulson told the press he was greatly disappointed, but commended Congressional leaders in both parties for hard work in trying to get a viable compromise passed. He explained that markets under stress exacerbate the scarcity of credit available to consumers and to businesses across the country, and that without action, the current credit situation will worsen and the economy as a whole will be affected. He said he will work with Congress to prevent “further deterioration in our economy”.
Asked if the US banking system can hold up under the current stress, Paulson said “Our banking system has been holding up very well”, given the current stresses. He also said there are “significant tools” available to government officials to use to try to forestall any worsening of the situation. Another (near) bank failure marked the day, as commercial banking giant Wachovia, reportedly on the verge of collapse, was bought by Citigroup on what some are calling “firesale” terms.
Analysts have begun talking seriously about a sudden upsurge in job-losses related to the vanishing of available credit associated with the collapse of major banking institutions. With job-loss being considered one of the main triggers of mass foreclosure, there are worries that increasing job-loss could significantly worsen the impact of a tight credit environment, and even lead to further bank closures, as foreclosure spreads.
There have been calls for a moratorium on mortgage foreclosures, including requiring banks to renegotiate unpayable loans in order to prevent foreclosures, home-loss and bankruptcies. Competing points of view argue that this should be imposed, without assistance, or that the government should provide funding to help banks arrange for such consumer bailouts.
The Dow Jones Industrial Average dropped by a record amount, and also saw its single most dramatic drop just before closing, dropping some 400 points in just 10 minutes. The total value lost over the day is reported to be over $1 trillion, significantly more than the total amount of the bailout fund that was rejected by the House of Representatives.
While Republicans blamed Speaker Pelosi for “making a partisan speech” just before the vote, they were ridiculed by pundits and journalists for equating the import of a rhetorical speech to the gravity of the national economic crisis they were to confront. Republican leaders believed they had 12 votes more than they were able to produce during the vote.
The most likely explanation for the bill’s failure, hashing through all the commentary, the competing political claims, and the media-wide air of alarm, is that the entire House of Representatives is up for election on 4 November, and Congress has been flooded with angry calls from voters concerned that Wall St. executives will be taking their money with no guarantee it will be repaid. Election-year pressure clearly made it seem the safer choice for many representatives to oppose the bill and demonstrate —however quixotically— their willingness to “take on Wall St.”
The credit-rescue bill’s failure, coupled with the market’s record drop, means more businesses may be at risk of going under, including some banks, and credit for businesses and individuals in general will be harder to find. At least until some sort of remedy is crafted, and major financial institutions can be assured of transparency sufficient for understanding the books of their competitors by any means other than buying them out.
J.E. Robertson @ September 29, 2008