The Bailout Bill Fails (Update #3)

Posted by: Jane Sasseen on September 29

By Jane Sasseen and Theo Francis

What the heck just happened?

Once again, it is back to the drawing board for the Treasury’s proposed $700 billion rescue plan for the financial industry.
In a development that stunned Washington after more than a week of intensive negotiations, the bailout bill failed in the vote in the House early this afternoon. The vote started at 1:30 and was supposed to have been completed quickly, but by a little after 2 PM, only 205 House members had backed the bill versus 228 against. The bill needed 218 to pass.

The defeat sent the Dow down more than 750 points, or nearly 7%, and left lobbyists and Congress members alike scrambling for an explanation. “The legislation may have failed, but the crisis is still with us,” said Speaker Nancy Pelosi in a press conference held soon after the vote. While she pledged to go back “for another bite at the apple”, it was far from clear how the bill could be revived.

Indeed, the defeat left people throughout Washington nearly speechless. Lobbyists from both sides of the aisle, were equally stunned. "I can't quite think there's been anything like this, ever," said Damon Silvers, associate general counsel for the AFL-CIO; meanwhile, one well-connected -- and exhausted -- business lobbyist pointed out there is no Plan B.

The big problem, as has been obvious since Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke first told Congressional leaders help was needed 11 days ago, was the lack of support from a rebellious band of conservative Republicans who are dead set against the plan and the notion of the government taking such an extensive role in the fixing the private sector's woes.

GOP leaders could not win enough support for the compromise bill they had negotiated with the Administration and the Democrats, despite winning backing in the final bill for a program pushed by conservatives that would have allowed the government to insure toxic mortgage assets in addition to buying them directly. Only 66 Republicans voted for it, with 132 against. Congressional leaders predicted they needed at least 80 supporters from the GOP and at one point hoped to get 100. Among the Democrats, 141 backed the bill and 94 voted against.

But ideology is hardly the only explanation for the defeat. Lawmakers on both sides of the aisle were acutely aware of public perception against the bill: it has sparked huge public opposition, as many perceive it as little more than a bail-out for the Wall Street fat cats who got the country into trouble in the first place. In many Congressional offices, the phone calls and mail against the Paulson package is running 100 to 1 against the plan; one lobbyist noted that 90% of independents were said to oppose it. With less than five weeks to go before the election, conservative Republicans with a free market bent -- but also a fair number of Democrats who thought more money should go to help struggling homeowners, rather than banks -- were furious, and scared, at being forced to vote for something that many of their constituents hated.

"Politicians started hearing from everyone who hated the bill, and this is an election year," says Scott Talbott, senior vice president for government affairs for the Financial Services Roundtable, an industry group. "They didn't hear from anyone in their districts who supported it."

The crux of the problem for lawmakers may be reflected in two Gallup polls: Americans are worried, they want Congress to do something, they don’t trust the Bush Administration plan – and while they’re unhappy with everyone involved, they’re more unhappy with Republicans.

The first poll, published Friday, shows that eight Americans in 10 claim to be following the debate – that’s a lot, especially for something this wonky – and more than two-thirds of Americans want Congress to do something. They’re serious about it, too: Nearly three quarters think the economy would get worse over the long term – “the next several years” – if Washington doesn’t act. And yet 56% of those polled want a plan different from the administration’s proposal.

Meantime, a Gallup poll released today (and taken Friday and Saturday) suggests that Democrats were muddling through the mess looking better than Republicans – on a relative basis. Asked whether they approved of how various people were handling the crisis, Barack Obama came out on top (46% approve), followed by the Democrats (39%), John McCain (37%), Republican congressional leaders (31%) and the administration (both Paulson and Bush at 28%).

That may also have fueled the Republican rebellion, as many of the Conservative house members may have concluded that this was a good time to make a stand on their free-market principles. "If you were a no vote, those polls would have upset you, and emboldened you," says one analyst closely following the debate. "That's a dangerous combination."

In the end, the public opposition may simply have given lawmakers a reason to buck their leadership and vote against the bill – Democrats because they disliked saving Wall Street without strong assistance for homeowners, and Republicans because they disliked meddling in the markets, added another lobbyist who opposed the bill for providing too few homeowner and taxpayer benefits. “I think electoral fear propelled people to a place where they wanted to be anyway.”

So what's next? No one knows. The only thing that's clear: Speaker Pelosi, Paulson and the Republican leadership are in for some more long days and nights at the negotiating table.

Reader Comments

Guk

September 29, 2008 02:21 PM

We are definitely getting into depression...

sam

September 29, 2008 02:21 PM

Nancy Pelosi should thank the Republicans for saving her. I did.

Peter

September 29, 2008 02:26 PM

Can you say depression?

Mahagwa

September 29, 2008 02:30 PM

At the end of the day, there will be a seismic shift in the economic order of the world; with China, Russia, and possibly Japan, riding up top. The US it seems, has definitely lost its Economic clout. We should all send a BIG THANK YOU to Bush and his buddies for creating this (amongst many others) mess.

Phil

September 29, 2008 02:32 PM

I congratulate our national legislative leaders in making the tough choice and voting to reject a financial bailout based on fear. If we are facing a world recession or worse a depression -- it seems like a lessor risk than forcing a catastrophic burden of debt on future generations.

Pete

September 29, 2008 02:37 PM

It is a great day in our great Republic. Our government is finally pushing back against the corrupt, bribe-taking politicians that have tried steamroll this garbage bill through. I am proud of the Representatives who voted against it and hope they'll maintain their stance. The US taxpayer shouldn't be shackled with Big Finace bad decisions for generations. The FREE market will correct this mess on its own without government intervention. The Fed. created this bubble and should stay out now. Treasury is only a mouthpiece for Big Banks who are their true masters. Great day in America ... for now.

Sidney Leever

September 29, 2008 02:41 PM

It is rare that our congress has to make a tough call that is for the good of the country. Sad to see that we have so many short sighted leaders who were more worried about getting re-elected that had them vote no.

Now when credit markets freeze up and we begin a depression we can vote all of them out of office because they could have prevented what will be a very difficult time for all of us.

Banks only work with confidence in the system they just removed that possibility and now they will look to blame someone else.

Bipin Agarwal

September 29, 2008 02:45 PM

Thank you John McCain for showing up in Washington.

Bill M

September 29, 2008 02:47 PM

We might have to get back into real economic activity -- you know, growing food, making things, providing services that are genuinely helpful to people. There are only three basic activities that have any long-term value in business: making stuff, selling stuff, and counting the money.

Jack

September 29, 2008 02:48 PM

I'm a real lefty but I could hug those Republicans who sank this atrocity. Someone said capitalism will always succeed because it will always be rescued by socialism. Maybe not this time!

Avkrash

September 29, 2008 02:48 PM

Damn you Yankees.

Tomorrow the Asian markets will get nuked due to your excesses and the failure of your representatives to clear your own mess.

I am now wondering which floor should I jump out of to be sure of least amount of suffering in the air and certainty of a quick end.

Nguyen

September 29, 2008 02:53 PM

Good! Do not take tax payers' money to give to rich banks that corrupt the poor for their wealth. It is free market economy, so let them correct themselves. Government intervention is a bad idea.

The US economy will be down for a while, but it will start another boost in 2012. Do not worry much as the business cycle is that.

GLL

September 29, 2008 02:53 PM

Score one for the U.S. taxpayer. The political class is not totally bought and owned by Wall St. Imagine if the stupid and greedy bankers who generated this mess actually passed on the FED rate cuts to the consumers instead of pocketing the spread for themselves? What if consumers could get a 30 yr fixed rate mortgage at 5%? The market would explode with business as people rushed to refinance and restructure with government assistance. Do the banks really want to sit on millions of empty homes?

sam

September 29, 2008 02:57 PM

Some of you need to learn the meaning of the Fallacy of Consequences. There are no facts about the future. Just because someone in a high place says something will happen, that doesn't mean it will. That is the Fallacy of Authority. The main mistake is that this started as a bum's rush to give a blank check to Hank. I doubt they can change this impression enough to change votes.

jon

September 29, 2008 02:57 PM

i'm so "happy"...the republican house self-servingly votes to protect my tax dollars ($2K plus per capita for bailout) and I lose $100K in my 401K as a result.

richard carter

September 29, 2008 03:00 PM

perhaps it is time to attack this depression from the bottom up. Government sponsored construction and work programs aimed at creating a greater infrastructure and energy independence. While,if the government wants to make credit available to the average taxpayer and small business then they should charter a new bank for that purpose. Such a bank would not carry all this luggage and could pump credit into the market while letting wall street suffer the consequences of its actions.

Henry

September 29, 2008 03:00 PM

Lew Rockwell of lewrockwell.com said; "What a heroic day! The people rose up against a coalition of every evil group in America: the central bank, Wall Street plutocrats, politicians, banksters, think tanks (including the pseudo-libertarian sort), big media, big academia, and big business, and won. Today we got a taste of what things may look like when the regime is finally toppled, and its theft and killing stopped. The Austrian economists are vindicated again, as is Rothbard's political analysis, and our pizza party for Mises's birthday today look on an especially festive air. The bad guys may yet beat us, but how sweet to see the CNBC types running around like chickens with their heads cut off. Now let's get to work to defend the free market and sound money, and finger the Fed and all who support it as the culprits. Oh, and by the way, congratulations, Ron Paul."

Kind of Bored

September 29, 2008 03:02 PM

Avkrash,

The higher the better, I would think. Just don't land on anyone.

Stone

September 29, 2008 03:03 PM

These are the representaives who we voted for. Be careful what you wish for, it did come true.

Henry

September 29, 2008 03:04 PM

Thank God, maybe the purchasing power of my pension check will not be destroyed by hyper-inflation afterall.

Praveen

September 29, 2008 03:04 PM

Kudos to the House!..They have rejected a bill that would have rewarded reckless risk-takers and GOP and Bush is to blame for this for dragging the entire country's economy into the drain by focussing on the war in Iraq...

zirog

September 29, 2008 03:05 PM

Clinton & the Democrats bear 100% responsibilty for forcing Banks to lend to those who cant pay back.

Descartes

September 29, 2008 03:08 PM

The team Bin Laden / Bush is doing a great job for America...I saw a website where they sell "Thank you Mr Bush" lawn signs....as long as rednecks and religious freaks rule this country the US got the government it deserves.
Question: is Bin Laden behind that "thank you mr Bush" campaign...he ought to be!

Henry

September 29, 2008 03:11 PM

Avkrash said; "Damn you Yankees." Sir, for your information, not all Americans are Yankees. I am a Southerner and proud of it. My advice: get busy and short the Asian markets. I wish you the best.

random

September 29, 2008 03:14 PM

John McCain rode into Washington to get his fellow Republicans to pass the bailout. He couldn't do it. Now I would say that his chances at election are severely hurt as he couldn't lead his own party.

There does need to be a bailout however. It should be better thought out and use existing tax dollars meant for pork and fluff to work with banks to settle their distressed debt. Ok, fine and fire the CEOs and their posse of friends and enablers, put the hurt on subprime companies which practiced Pulsen Pen lending and artificially inflated home prices for three years. Punish whoever you want but cleanse the system so the banks can operate normally.

And Avkrash, I think the tenth floor would do quite well though you might have enough time to think about it and reconsider mid-flight so be really sure you wanna go splat first.

Joe

September 29, 2008 03:16 PM

How is this a good day? The Stock market plummeted. We need solutions not more arguments. Republicans have put the economy in crisis again.

Anthony

September 29, 2008 03:16 PM

Like the economy, I am devastated at the news. I have no pension and now my 401K is the casualty of the last eight years.

girer

September 29, 2008 03:18 PM

Democrats & Clintion giving away easy loans through the CRA learnt a lesson now - THERE IS NO FREE LUNCH !

damned Southerner

September 29, 2008 03:19 PM

Avkrash,

At least the 6th floor. Enjoy.

Ozz

September 29, 2008 03:21 PM

We have saved capitalism from the capitalists!!!Greedy bastards..

gary

September 29, 2008 03:22 PM

Lets get or statements in the realm of political correctioness. It was his Majesty Bill Clinton who twisted the arms fannie may and freddie to lower their lending practises to give loans to people who could not pay for them. He even admitted this on good morning america. Lets blame the right person for a change who got this situation started. Just like NAFTA who sent our jobs overseas, it was CLINTON!

Birdy

September 29, 2008 03:23 PM

The only people making any sense on this issue were the House Republicans arguing against the bill this morning. It just galls me that Barney Frank is the main defender of this bill. It's his efforts to promote borrowing by sub-prime borrowers that got us into this mess. Why isn't Congress addressing the root cause of this problem and scaling back Fanny Mae and Freddie Mac?

Why is FDIC allowing failing financial institutions to merger with larger institiutions? Don't we already have a problem with financial institutions that are "too big to fail?"

Having the Fed print money will not get us out of this problem. We have to tighten our belts and live with consequences of our borrowing and spending excesses over the last few years. It's going to be painful.

Charles

September 29, 2008 03:24 PM

What about the affect of fund withdrawals?

Captain Ahab

September 29, 2008 03:25 PM

Have any of you nay sayers ever taken an economics class......The economy operates in cycles and we are on the downside of the cycle. No matter what any of you think the policies that were destroyed during the reign of the greatest democrat since JFK were the cause of the down turn in the economy. If you want to thank someone for this thank William Jefferson Clinton and his policies. You much like the namesake for my pen name are just searching for the great white whale to lay blame for your miserable mistakes. Toughen up and be the Americans that our children can be proud of and work your way out of this bad situation. It is not the role of government to take care of anyone who makes poor decisions either in business or personal agreements.

Eric

September 29, 2008 03:27 PM

To Avkarash

Hang on, mate, may be your sense of humor will save you :)

Chuck Darwin

September 29, 2008 03:27 PM

Congrats to congress. My question has always been: If we do this bailout then what? Business as usual? No way! The greedy firms, with their questionable business practices, need to go under so the fiscally sound firms can rise to the top. If there are no consequences to bad behavior, then bad behavior continues (or in this case was even to be rewarded!).

Josh

September 29, 2008 03:32 PM

What would Ludwig Von Mises, Hayek, and Murray Rothbard say about this tremendous day in U.S. history?

Fred L

September 29, 2008 03:36 PM

Now it is time for the investor class to suffer lke the rest of us have done for the pat 20 years.

omg21

September 29, 2008 03:38 PM

Pelosi pulled a fast one. We aren't going to see this bail out until right after the election. Pelosi made it political and not for the betterment of the US economy. Nice job, Nancy!

Frank Staheli

September 29, 2008 03:39 PM

Avkrash,

You are right about the Yankees. Our profligacy will be the downfall of markets around the world.

But please don't blame me. I have not voted for a single one of the shysters in public office that helped or have helped in the past the US economy to reach the precipice that it's on now.

If only the people would stop listening to Big Money and listening to common sense, Ron Paul would be the Republican nominee for president right now.

SimpleUtahMormonPolitics.com

socialLT businessRT

September 29, 2008 03:41 PM

I agree whole heartedly with Jack. Americans have been behaving like a spoiled child in a toyshop. It's time to give some parental guidelines and discipline to Wall Street and over consumers.

Bob

September 29, 2008 03:43 PM

AvKrash... The 7th floor is your best bet. 8 is a bit excessive and 6 may not get the job done.

steve

September 29, 2008 03:44 PM

What's the problem, moderator? Too many high fives from the people? Why would we care if a few rich people lose their view of Central Park?

purewater7

September 29, 2008 03:47 PM

In all honesty, I am not really sure what the Bill was all about and if those who crafted it understood it enough to explain it properly to our Senators and the American people. I never got a clear understanding of it and how it would help except to bail out those that created the mess. At this point I don't know who I would vote for and my cat Faith is looking much smarter that those in office!

Joshua

September 29, 2008 03:57 PM

Maybe congress does have a backbone! Too bad the Democrats didn't have the same nerve the Republicans did in standing up for this atrocity. Borrowing huge sums of money to put off an inevitable market correction is really bad business. It's better to pay the price for failures now rather than allow more debt to compound the problem. There is no sense in rewarding bad behavior. Banking executives have become rich with their scheming at the expense of homeowners. Bravo to the house!

Jason

September 29, 2008 04:00 PM

I wonder what's worse, a loss of 10% of my retirement account and the slowdown of the economy (meaning also my job) or my share of the additional future debt? I imagine all the people who will lose their jobs (& not just in the financial sector) as a result of congress' failure to act quickly would think that the future debt is a better thing. The most idiotic part of all this is that congress couldn't act quickly to solve this problem. I'm glad they're trying to add provisions to protect the taxpayer (go checks & balances!), but they need to ultimately find a solution. I don't care who caused this problem, but it does need fixed, and now. I can understand that Americans ignorant of how things work (clearly shown by their chronic overspending...credit card debt, houses they can't afford, etc.) might be fearful, but that's why we have representatives running things. They're supposed to spend their time learning these issues and making the best choice for us all, not just so they get re-elected. I'm going to fire my rep next time he's up for re-election, regardless of what else he does, since he's failed in the biggest time of need.

Tony

September 29, 2008 04:02 PM

I'm delighted that this thing went down in flames. Absolutely, things are going to get bad. It may take a year or more to fix this mess, but that is better than the alternative this bill would have created. This is a generational disaster. Guess who would have financed this? China and Russia. Guess who would have been paying for this? Our children. Congress did the right thing.

Steve

September 29, 2008 04:05 PM

Those who think the "free" market will sort things out in the best interests of all citizens have never tried competing with Wal-Mart or Chinese industries, who rely on government subsidies and tax breaks to slit the throats of their rivals. The bailout isn't perfect, but the alternative is oligarchy, not free-market capitalism. When the dust clears, the oligarchs will be more powerful than ever. And if you thought big government was bad....

Haegar Schmidt

September 29, 2008 04:10 PM

I don't see the point. Real estate has been an artificially inflated market. I don't see why a house price would raise - houses are basically as stupid investment as a car: it gets old, must be frequently and expensively repaired, and needs a total overhaul every 30 years and so. How is that a smart investment? I hope that we will invest more in our communities, nice real-things-making and services business, and other future-oriented things now. Do not worry, we will make it through this mess and it will be better when the sun raises over the ruins of the greedy ones.

SpicoliCPA

September 29, 2008 04:10 PM

The root cause of this crisis is Mortgage Backed Securities. In otherwods, Wall Street realized they could loan money to any homebuyer who was willing to sign. It did not even matter if you were in the US illegally! Fat Kats in the mortgage industry got rich, Fatter Kats in Wall Street got rich. Irresponsible home buyers who thought it was their turn to get rich now are defaulting on these garbage loans and now its time to pay the price.

By the way, my wife and I still can't afford to buy a home in Southern Californa. We did not drink the Cool Aid when everyone was inflating the bubble because we knew we could not afford a home at inflated market prices.

BUT: the primary reason my wife and I are still renters is that the ignorant were seduced into signing these flagrantly risky “exotic loans”. Or much more likely, that greedy individuals misplaced their bets that home ownership was an ATM; causing the market to bubble and home prices to rise out of our budget. We knew that these exotic loans were risky; and that the market was inflated, and elected not to expose ourselves to the chance of loss. They are called “Variable Loans” for a reason, rates can adjust. We knew this not because we are especially intelligent, educated, or in some other way associated with a “silver spoon” heritage. We are just an ordinary American family who can balance our checkbooks and understand the concept of too good to be true.

Allow the market to adjust, dont allow this crisis to result in a Bail-Out of greedy home buyers.

It is NOT fair that people who acted irresponsibly and purchased a home they could not afford should now be bailed out and allowed to stay in their home. NO, this home should revert back to the bank and should be re-listed as FOR SALE along with all the other unsold homes. In this manner the market will correct itself and home prices will adjust to actual demand driven prices. Perhaps one day my wife and I will be able to afford to buy our first home. We do dream of stepping into that promised land of “Home Ownership” one day. Only if the market is allowed to adjust will this happen. One thing is for sure; we won’t be able afford our home at the current grossly inflated prices.

By bailing these unfortunate (unlucky) individuals out what you are accomplishing is punishing people like my wife and I who acted prudently. The cost of bailing them out will be carried by your family, and by my family. Corporation like Countrywide do not lose money, they will pass the costs on to you and me. Price controls do not work, a free market must be allowed to adjust and correct.


David, Medford, MA

September 29, 2008 04:12 PM

The fears expressed on both sides are correct: without the details, it could have been a massive and unfair bailout. And without something like it, we are likely to have a severe recession or worse. A fair bill would offer a deal to stressed home owners no worse than a short sale; give a reduced mortgage to the bank, and create rights to future appreciation for both parties and the government. I doubt the banks and asset holders will allow this, even though it is in their self-interest.

Jim Pivonka

September 29, 2008 04:14 PM

Houston, we have a problem.

Our people, and our representatives think this is about protecting financial institutions from failure resulting from bad judgement about mortgage backed securities.

It is actually about protecting the worldwide supply of money and credit from collapse due to deleveraging, the vanishing value of leveraged collateralized debt obligations and credit default swaps.

These have become, under the market fundamentalist initiated financial deregulation regime, the source and underpinning of the money supply. If they collapse the money supply will have to be re-created by central banks and governments. Doing that will require dealing with exraordinarily difficult political and distributional issues.

Any delay in restoring the money supply will kill economic activity, and throw the world economy back 20 to 30 years, I suspect. So the sooner the printing presses roll, the better.

Paris

September 29, 2008 04:14 PM

Wow! Thats great news! That means US economy will eventually survive, instead of an instant collapse! Depression will occur in any case.But it will not be as severe as with the bail-out scam.Sounds good to me.

Ray Murray

September 29, 2008 04:14 PM

The Sky is not falling. This is NOT Armageddon. It is NOT a meltdown. Our country will survive this crisis and this administration. (Look at Japan's financial crisis for the past 10 years). Those that gambled on Interest Only ARMs and no qual Jumbo Mortgages and "Liars Loans" will get it in the shorts as well as the "Fast Buck" lenders, whether they're Chinese, Japanese, European or American. (Check out Deutshe Bank's Cleveland experience;
http://news.bbc.co.uk/2/hi/business/7073131.stm).
Learn this important fact: History has shown that all Bankers have NO NATIONALITY.
America will learn a hard lesson: Frontier Politics and 18th Century Laissez Faire economics is out. A pragmatic approach to gov't., the economy and the world is in order. Reduce the $100 Billion Weapon Systems and the $650 Billion Defense Budget; stop the foreign wars tomorrow and start learning how to compete economically in the world. Keeping Republican Extremists in power is dangerous. They still think the Metric System is a communist conspiracy when JFK tried to get it started back in 1961. They think that any gov't. activity, other than Nat'l. Defense smacks of Socialism. Who will bring American to its knees and its senses? The ACCOUNTANTS of course with the simple stroke of a pen.
Anyways, tighten your seat belts America, 'cause you're in for one bumpy ride!

Todd

September 29, 2008 04:24 PM

To all those happy the bill failed and hearalding the oncoming crash, think about the thousands who starved to death during he depression. Think about the lives wasted in the dust bowl. Think about the families shattered after parents had to give up children to the state when they couldn't be cared for. I'm not economist and don't have a guaranteed solution. I do know that debt is better than death. If even a portion of what economists and politicians are predicting comes true, there will be devestation on a level the current generations have only heard about. How ignorant are you that, unless you have your money in the backyard, you're going to lose your savings. Your 401k will soon be worthless and you may well not have a job. Start collecting your boxes now so you have some place to sleep!

JC

September 29, 2008 04:33 PM

Finally! Very happy to see a stop placed on this administration full of crooks!

beggarfor govmoney

September 29, 2008 04:39 PM

We might have to get back into real economic activity -- you know, growing food, making things, providing services that are genuinely helpful to people. There are only three basic activities that have any long-term value in business: making stuff, selling stuff, and counting the money.
============
yes, hello.
how many people thought they could make big money for doing so little?
time to invest in yourselves for a change instead of the mighty ponzi scheme of wall street.

Mark

September 29, 2008 04:46 PM

It is a bitter pill, but better than the cyanide that Paulson offered.

tj

September 29, 2008 04:47 PM

The bailout has to be redone. The Republicans are the ones who refused it. People don't understand that the bailout is necessary. It will save the economy and companies and your jobs and the banking system. The stock market is already crashing. People don't feel the full pain yet because the crisis is just beginning. A Depression is ahead. The tax money isn't given away, it is buying bad mortgages at a discount. Some people think the government is giving the money away when they are not.

Tom

September 29, 2008 04:59 PM

THIS IS A BAILOUT OF GLOBALISM.
The global aristocracy has screwed up and now they arrogantly want the commoners to pay for their mistakes. By sending American jobs overseas and running a large trade deficit they generate massive counter-flows of dollars from Asia and Germany. This money is sent to the US to fund more credit card debt, bad mortgages and car loans so people will buy more Japanese and German cars.

The only problem is that the commoners will not pay the tab for a system that has undermined their interests. Now the elites are desperate and begging.

Teiresias

September 29, 2008 05:01 PM

(Tiresias told Oedipus just who he married) I read the immediate posts to this story with great interest. Sadly,
what nobody noticed (so far) is that it took the Republicans one generation (Nixon,Reagan, Bushes I and II) to bring us to the same brink they did three generations ago, by ignoring the self-destructive greed, avarice and cupidity of the financiers.

Vlad

September 29, 2008 05:03 PM

Wow. We are living in interesting times. Remind me again, why a relatively low number of subprime delinquencies caused this mess that now resonates globally?

I think we can now safely assume that Europe is next, and if ECB continues to hold on to high EURIBOR, a lot of home owners will feel that soon.

logic

September 29, 2008 05:04 PM

I think the House did the right thing. All that the money would do is re-price existing assets (shares of stock). As hard as it is to watch, it's best to let the market do that. The money borrowed to prop up paper asset prices *today* would become a yoke of debt worn by ordinary people and our children for *decades*. Not worth it. Let foreign investors send price signals about what America is doing right (investing in shares of well run companies here), and let's not fret about Paulson's buddies and Bush's buddies.

Kwame

September 29, 2008 05:08 PM

Yep! The GREEDY SOBs (Hedge Fund Mgrs, Wall St Investment Bankers (all they ever do is M&A, and damn the laid-off employees of the consolidated Co.s?), and the corrupt politicians and Lobbyists!! Serves ALL the "Free marketers", "Greed is ALWAYS GOOD MOSTLY White Republicans!!!" Now, the Chinese will buy Goldman Sachs!! Overt VULGAR Greed is in your DNA, No? C'est la verite!! Remember, Drexel Burnham Lambert investment house and the "smoking-mirrors" ponzy-scheme "Junk Bonds?" GO FIGURE!!!

Pravin Soti

September 29, 2008 05:12 PM

Congress indeed did a right decision. Problems caused by years of malfuctioning in the financial sector is now directed towards a solution. I am sure it will clean the whole system. Its like formatting your computer which is infected by viruses. Your were trying Norton, AVG and whatever you got. Now you have formatted your PC and now make a best antivirus so you wont get infected again. Cheers !

Penn

September 29, 2008 05:15 PM

Thanks to all those who had the chuztpah to say no to this 'BUY-OUT' government bill.

Time to roll up your sleeves, admit past failures and get to work on doing us some long term good for our future financial security.

trader

September 29, 2008 05:17 PM

todays drop was shocking.

thx to politics, i dont see any good bailout coming...

maybe just leave the bailout alone... let us traders make money by shorting....

JB

September 29, 2008 05:19 PM

Todd - Exactly. These people are talking about a depression like it's just something a few of us will have to muddle through for a few months. The trouble is there aren't many people left who lived (just barely) through the last onw. This will be a very different world and much angrier than in the 30s since we have all become so "entitled".

Despite the doom and gloom, only 1% of mortgages are in default. About 6.5% are 30 days overdue. The 700 million represents about 5% of total mortgages -not a number that Treasury "pulled out of their ass" as some have suggested.

It was worth a shot to have government buy back the loans that should have never been made in the first place.

Dan

September 29, 2008 05:22 PM

Market will correct it's self. Either way its going to hurt.

william

September 29, 2008 05:25 PM

On a percentage basis, today's plunge is much less than the plunge in '87, when 600 points was 1/3 of the market value. The whole thing was based on logical fallacies, and the people have gotten wise, even if the Democrats haven't. Once we see what the real damage on Main Street is we can deal with it. Solar energy, mortgage revisions, national health- all real solutions to real problems.

Bird

September 29, 2008 05:28 PM

Those in Congress who championed the era of cheap credit should resign in disgrace.

SH

September 29, 2008 05:29 PM

We did not get into this mess over night. Why should we expect to get a plan to fix this overnight. I believe there will be a Bill, but it will have to be a plan that will work. If congress need to take time then take the time. Wall Street should chill out.

Vivien

September 29, 2008 05:29 PM

The real problems are:

The institutions are unable to evaluate the actual worth of the securitized credit instruments so the weight on the financials' balance sheets is huge yet opaque ...

The unknown number of mortgages that will go south contributes to this since the instruments are based on the repayment of said mortgages

The solution which I think is pretty obvious ... Set a floor on mortgage values by:

First making this program universal and mandatory ... no exceptions for any mortgage or financial institution

Going guarantor for every mortgage at the rate of 50 cents on the dollar ... meaning if foreclosure happens then the federal government will pay the holder of the mortgage 50 cents of the principal. This would apply to only homes that are actual homesteads. Ahem -- f#*# the speculators.

Making the 50 cents on the dollar an inescapable obligation for those who borrowed. Since this is a debt to the government, it doesn't matter how long it takes to collect, they will collect it through wage garnishment, ineligibility for entitlement programs, tax return garnishment, etc. Much like student loans.

Issuing government bonds based on the obligations incurred by paying out the guaranteed 50% and pay a decent interest rate on the bonds as well as issue in small enough denominations that every day citizens can buy these bonds instead of making the Wall Street thieves the sole beneficiaries

Since the houses are now owned by the federal government and the monies paid out to the mortgage holders are from the bonds issued, the houses should be sold at the flat 50% mortgage value to any citizen within the US who hasn't been foreclosed on and is a first-time home buyer. Payments are 30-year fixed and have the interest rate paid out on the bonds ... but this bond-backed mortgage is not tax-deductible in any way

Any financial institution that is so insolvent that they can't handle this should be let to fail, the limited liability shield pierced and all the assets of the management and shareholders should be assessed at their percentage of ownership. After all they made the profits -- time to regurgitate the profits

RICO prosecutions and asset seizures for financial and mortgage industry employees who participated in the fraud.

This is pretty draconian but would be very effective. There is now a floor value on the CDOs since we've set a 50% minimum recoup on the mortgages and sequentially, a 50% value on the CDOs which are based on the mortgages. It doesn't reward a single person who benefited fraudulently from the debacle (including the home owners who obviously lied about their income). It puts houses in the hands of those who can afford them and stabilizes the housing market since excess inventory is being soaked up very rapidly at these prices and with guaranteed financing available ... And the bonds issued provide a return for those of us who weren't complete lying idiots ... Not pain free but at least depression averted ...

But given the collusion between the rich banking aristocrats and their congressional lackeys, I doubt this ever happens ...

Henry

September 29, 2008 05:32 PM

Lew Rockwell said; "What a heroic day! The people rose up against a coalition of every evil group in America: the central bank, Wall Street plutocrats, politicians, banksters, think tanks (including the pseudo-libertarian sort), big media, big academia, and big business, and won. Today we got a taste of what things may look like when the regime is finally toppled, and its theft and killing stopped. The Austrian economists are vindicated again, as is Rothbard's political analysis, and our pizza party for Mises's birthday today look on an especially festive air. The bad guys may yet beat us, but how sweet to see the CNBC types running around like chickens with their heads cut off. Now let's get to work to defend the free market and sound money, and finger the Fed and all who support it as the culprits. Oh, and by the way, congratulations, Ron Paul."

artur

September 29, 2008 05:41 PM

Let the market playout to the end.

If the legacy banks/financial institutions will not lend money anymore
to finance banks/students/etc loans
let the government fast track the approval process so hedge funds/etc
can loan directly to the public.

Squeezebox

September 29, 2008 05:45 PM

One simple question. What is it going to take to get bankers to lend again?

Larry

September 29, 2008 05:51 PM

Thankfully the Republicans and 90 Democrats came to their senses.

Anything that is sold saying that it has to be closed in a week or the sky is going to fall is always trouble


Nancy Pelosi now blames the Republicans, hey Nancy do you understand what being in the Majority means? You didn't need the Republicans, you just needed to make sense to 90 of your party members.

Hello, is this thing on?

Henry

September 29, 2008 05:51 PM

Let no one blame the markets for the so-called "financial crisis." It was the wide open money spigots at the FED that was to blame for all of the malinvestments. The markets do not need more regulation, but the FED surely needs to be regulated.

Kevin O'Brien

September 29, 2008 06:11 PM

Greed has overridden commonsense. Unless the banking system functions, by having sufficient liquidity, work and trade will slow down or come to a halt.
The package was not a 'bailout': offering a facility to buy securities at an assessed value, but a market for banks, to enable cash to flow.
Some extra regulation and accountability may be desirable, but that is for tomorrow. The price of envy, now, may be catastrophic job loss and not just in the USA. Markets are interrelated and the values of securities held in another country may affect the ability to trade locally. This weeks payroll for many depends on your employer' sbalance sheet and their banks balance sheet. This is a not a matter of ideology but commerce. Trade is frequently concerned with timing and if your bank cannot itself get the money to finance your crop while it is growing what do you eat.
The package was sensible, the Government was going to buy assets at a fair price that couldn't be sold at this time elsewhere and deal with them in an orderly way, prudently and probably profitably.
The envy of the rich may give bitter herbs to the poor.

CJZ

September 29, 2008 06:14 PM

What I don't understand is not so much if the bailout itself works or not. My concern is how to pay for it.

Why don't we start selling oil from Iraq, we can pay for the war and the bailout. We don't need all of the oil just some of it. After all we gave them freedom and as they say, "FREEDOM ISN'T FREE".

Or, instead of giving our money away to the UN or some country that is going to squander or steal it instead of providing human aid... lets take care of US instead of everyone else. Another quote comes to mind "CHARITY STARTS AT HOME".

Punjab

September 29, 2008 06:26 PM

What happened to your 401K? Wake up America! THE FAULT OF THE GREEDY BASTARDS!!

Jim L

September 29, 2008 06:34 PM

You can play the blame game til you are blue in the face, but that is not going to solve the problem. There needs to be an intelligent solution. There also needs to be intelligent people trying to get to an agreement. Make decisions not based on your political future. And to the leaders of both parties, lay off the political rhetoric and bull crap. It's the last thing I want to hear at this critical juncture of the future of the United States. The average American is disgusted with
Washington, Wall Street and all the rest of the carpetbaggers involved in this sordid mess.

sean

September 29, 2008 06:35 PM

For those opposed to the bailout: if the government doesn't act, then this country will see 25% unemployment and the USA as you know it will cease to exist.

This is the exact same scenario that preceded the depression of 1929. The government of that time chose to punish Wall Street by not providing liquidity to the credit markets. In doing so, the lynch pin of the US economy, the financial system, was destroyed.

I am a Wharton educated capitalist and even I believe government intervention is necessary.

ItsMidnite

September 29, 2008 06:38 PM

Nancy Pelosi should make sure she is acrossed the goal-line before she spikes the ball !!!

Chris

September 29, 2008 06:39 PM

Congratulations, Congress! This was a bold, brave vote today and I'm delighted that the House put a (brief) halt to the devaluation of the dollar. The national debt is estimated at $47 trillion by the IMF; we can't keep borrowing.

John Henry

September 29, 2008 06:45 PM

Can't we just ride out the inevitable and let the cards fall where they may? At least it will be an honest accounting of where our markets truly are. Anyway, being poor is fun!

John

September 29, 2008 06:47 PM

Should we not forget the billions of dollars per day we are spending on Iraq.
Those people want us OUT of their country. We need the money back in this country. Screw Iraq. It is useless battle and BUSH better wake up and realize that what he has done over the last 8 years is a direct result of the financial condition the United States is now facing. He truly damaged this country. The sad part is, I do NOT see any difference in McCain and Obama is a last resort. The VP's? What can I say.

Clinton

September 29, 2008 06:56 PM

Anyone ever read Revelations? A one world order with a one world monetary system? Well, now is going to be the best time to implement that since this will bring almost total global economic colapse. So, hang on to your hats. Let's see if a one world leader steps up. Who knows.....they may already be in the running.

Kim M

September 29, 2008 06:59 PM

These Fools spend more money on one meal then I spend in an entire year.... I say "Welcome To My World" enjoy the hamburger helper Wall Street.

JacLWin

September 29, 2008 06:59 PM

It's time to change the capitalistic system as we know it. Read Joel Magnuson's new book, Mindful Economics. His provocative perspective is what I've been espousing for years, only to be sneered at by the blinded good little capitalists in the world! Who's laughing now, elitist %(*&@.

yasaswi v

September 29, 2008 07:30 PM

I think the govt. should help the housing crisis, and home owners, rather than deal with the bans like the article said, becuase the whole problem was due to the housing crisis.

Wilson, Jacksonville, FL

September 29, 2008 07:39 PM

A good father does not always run to pick up a child when the fall. The banks failing and wall street group pretending to lose money teach them to learn how to restructure their operation and become profitable. These are well paid CEOs, they know business or send them to Junior colleges to understand business. Why should the unborn children help them? Do not hide in the congress, CEO think and build your companies. Do not bring this BAILOUT junk, we need the money to bail you out of jail.

Amazed

September 29, 2008 07:56 PM

I want to freely admit that I don't have total understanding of the situation, but that hasn't stopped 95% of the people who have already posted, so what the hay?

I am amazed at the crass simplicity of some of these posts... "Fat Cats" may have caused this problem, but they're not the only ones who will be punished.

You must consider that it's the average American who actually aquired a job good enough to barely manage to pay over 60K+ of school debt, raise a few kids, and save some money for their children's college in investment education savings accounts, that could (probably will) be crashing here along with everyone else.

If you genuinely think that the only people who have anything to lose are people with... what was the term... "Central Park view" housing, you are as ignorant of reality as most of the people you criticize...

I live in northern Colorado, a far cry from housing costs in southern California, and my husband and I still rent because we can't work a meager $250,000 house that has enough bedrooms for our two kids into our budget... we've been trying to prioritize and save for things that matter to us, like not having to force our kids to borrow tens of thousands of dollars of school loans the way we did.

Personally, I have no idea if this bailout is/was the right answer. I think they should have taken long enough before the vote to ensure the American people understood so that we could make an informed decision supporting our lawmakers or not... but this "Stick it to the bad guys" mentality is supremely ridiculous, ill-considered, and narrow-minded.

"Now it is time for the investor class to suffer lke the rest of us have done for the pat 20 years."

.... quite a lot of suffering happens in the middle of a workday, with the leisure to be on the Internet, reading BusinessWeek.com articles and posting responses, doesn't it?


Kitty Antonik Wakfer

September 29, 2008 08:18 PM

I am continually amazed at the numbers of people - even ones who profess to being broadly read in history - who do not recognize this latest financial fiasco in the US as another and expectantly major example of increasing government interference in the marketplace over the past more than 100 years. The major economic consequences now seen have only been repeatedly delayed (but not prevented) by prior government finagling in the economic interactions of individuals (the marketplace), otherwise referred to as "stimulating" or "fine-tuning" the economy. Now, however, the cracks are visible and the chickens are headed for the roost. The government's presence in all phases of the marketplace took a marked increase in the early 1930s when major supposed "rescue" measures by FDR actually deepened and lengthened the economic downturn that resulted from earlier government banking regulations. (See John T Flynn's _The Roosevelt Myth_)

Pertinent to the entire sub-prime mess that began this latest fiasco, which the "mother of all bailouts" was/is supposed to fix, Henry Hazlitt wrote in a subsequent revision of his book, _Economics in One Lesson_ c. 1979, :

"Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general tax payer to subsidize the bad risks and to defray the losses. They encourage people to "buy" houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in the long run they do not increase overall national production but encourage malinvestment."

And "malinvestment" is definitely what has been happening for many years with those "malinvestment" numbers a greater percentage of mortgages in the US than ever before.(US Government Accounting Office website - http://www.gao.gov/products/GAO-08-78R ; Federal Reserve Board 2008 Annual Dinner Speech - http://www.federalreserve.gov/newsevents/speech/Bernanke20080505a.htm However both of these sources give only a rather recent history of mortgage foreclosures and leave much unsaid about their own culpability.)

Everything about this bailout bill that failed - but will surely see the light of day again this week, politicians always seeking to control - is more of the same government shenanigans that brought the financial markets to where they are, the same things Hazlitt was warning against 29 years ago. I don't understand why so many business media writers are not making these facts clear... or maybe they haven't read Hazlitt...?!

**Kitty Antonik Wakfer
Casa Grande Arizona

Helene Love

September 29, 2008 08:50 PM

How much is too much? What is a piece of property worth? How high should it go? Come on, this is all ridiculous and why would someone sign their name on this dotted line? I've been working all my life and finally got to bring home $000/month at age 58; this is enough for me--I don't expect a raise; I'd prefer not to get one. That $600 Fed. rebate was to butter us up--I was embarrassed to keep it (but did buy some wood to repair my stairs to avoid a fall). I don't want to live at the mall, drive home in a financed car, then fall asleep in house I can never pay off. Looks like we'll have to bite the bullet and see what happens; maybe we'll lose our bulges, get healthy, and come up with a more intelligent way to manage the future.

David Klassen

September 29, 2008 09:30 PM

Why is it that the folks in Washington can only think up a Trickle-down solution?!

The problem is mortgages defaulting. The solution is easy: freeze foreclosures, anyone in arrears on a primary residence mortgage gets an automatic rewrite of their terms under the auspices of a bankruptcy judge, and the fed's can use any bail-out money to provide long-term, fixed-rate, low interest loans to they folks to help them pay of any other onerous debts (and disallowing any pre-payment penalties).

There, no more defaults.

Jim

September 29, 2008 09:42 PM

To all the fatcats on Wall St. when you jump take a lobbyist,a lawyer and a politician with you on your way down the only bad part is that average American will already be there

Larry

September 29, 2008 10:34 PM

There are 300 million Americans, Give each one over 18 years of age 100 thousand dollars.
That will jump start the economy and save most homeowners from foreclosure.

Do the math! My plan will stop the crisis and get the financial system back on track and only cost tax payers approximately 130 million as opposed to 700 billion.

investorism

September 29, 2008 10:45 PM

"Odious to public opinion"
+
"Odorous on Main Street"
=
a victory for the "sheeple"
who have been the food chain
of the financial services industry

investorism

September 29, 2008 10:46 PM

"Odious to public opinion"
+
"Odorous on Main Street"
=
a victory for the "sheeple"
who have been the food chain
of the financial services industry

Joy

September 29, 2008 10:53 PM

thank the men & women who care about reading all that this bill contained. The truth of the bill is not being told to the public. We are sheep being lead ,but hopely the real elected persons will vote to help the peopleof this free country.
These are all elected persons,but they pass the trouble bills over 20years ago and again in 1999. Read people and see who did this to our country. READ!!

Michelle

September 30, 2008 12:16 AM

Todd - I agree that there will be major issues that will not resolve themselves easily however, part of the Great Depression was the Dust Bowl that you mentioned. It was a horrific drought that created the Black Blizzards (wind storms that moved dust all around that covered planting fields)which in turn stopped people from being able to plant food. Thus creating a food scarcity leading to starvation. Today, thank goodness, we are not in a drought. Most areas support some type of individual gardening system; even the heavily populated metro areas. A bit of education and everyone could grow enough of their own food to support themselves. To say that todays issues are going to cause death by starvation is a large overstatement. As far as the Bail Out is concerned, there is no bank in the US that will give an individual a loan without at least a cursory background application. Should it be any different for banks? Yes, we need a solution but not a fly by night answer that creates more questions then it answers. Make the Bill clear and simple so that there is no fear of what the Bill is. Gratefully, I live in a country where individuals always take the brunt of economic downfall. Individuals also build it all back up again. It all makes us stronger. Thanks

Gayle

September 30, 2008 08:35 AM

Fingers are pointing everywhere.

Shouldn't accountability and responsibility fall into the hands of the perpetrators - the "Professionals", the CEO's, bankers, administrators of our financial services insdustry?

walter

September 30, 2008 01:50 PM

for the longest time americans have been on top of the economic chain and now they realize that no longer will they remain there. they are the spolied child in the candy store, who gets everything he wants but now hes gone broke. it is no wonder why we are hated by so many. fallen is babylon the great!!!!

Clinton

September 30, 2008 08:04 PM

I would like to thank Walter for recognizing that Babylon is truly falling. Hopefully more people will stand up and recognize this for what it is........A chance for total Governmental control; a one world leader.

Pat Wilko Aussie

October 1, 2008 12:46 AM

Its about time that the people at top got what was coming to them. Living off the little mans back, that works his guts out to support his family and stay alive. Why should some fat cat have the little man bail him out when that fat cat does not give a damn wether the little man lives or dies as long as they get there money out of them at the end of the day. I say coutos. Oh yeah Ashrav its a quick fall a the pain at the bottm is wosre than at the top, and the tenth floor sounds good.

Dave

October 1, 2008 03:13 PM

Forget bailing out banks that made sub-prime loans! Change the law to prohibit the sale or transfer of mortgages from one bank to another. Once the bank has their "skin in the game" for the life of the mortgage, they'll be real carefull about who and how much they loan out. That's how it worked thirty or more years ago. Failure now will pave the way for care and future success. The hard worker who pays their bills on time each month doesn't need to get stiffed again!

Denny Miller

October 1, 2008 07:16 PM

"Hey - let'​s give $700 billi​on to one of the most incom​peten​t Presi​denti​al Admin​istra​tions​ in histo​ry,​ even thoug​h they are only going​ to be in power​ for anoth​er 3 month​s.​"

"Hey - let'​s give $700 billi​on dolla​rs to one man to give away as he pleas​es - never​ mind that he heade​d Goldm​an Sachs​,​ an Inves​tment​ Bank,​ somet​hing that doesn​'​t even exist​ anymo​re becau​se the whole​ idea of havin​g $1 for every​ $30 inves​ted seems​ somew​hat insan​e - "

"Hey - Henry​ Pauls​on.​ In 2006,​ you made $38 milli​on as chief​ execu​tive at Goldm​an Sachs​ - and now you'​ve got $700 billi​on to give away to all of your buddi​es!​ What are you going​ to do now?​"​

"I'm going​ to Disne​yland​!​!​"​

If this ill-​conce​ived,​ unpre​ceden​ted givea​way is appro​ved by the Senat​e tonig​ht,​ then every​ Ameri​can is to blame​.​

The marke​t says these​ complicated secur​ities​ are now worth​ 20 to 40 cents​ on the dolla​r - not the 60 to 80 cents​ that the banks​ want - so sell them.​ Take your losse​s.​ Smart business people will make a fortune on these undervalued securities.

And some will lose it all -

Sorry if I don't shed a tear - but that's what greed and mismanagement gets you. And besides - I've got my own problems. I'm a small business owner, and I haven't had a vacation in years.

If my company fails, I don't get a "bonus" - or a government bailout - I get what the little bird leaves on the rock...

Why shoul​d the Ameri​can peopl​e over pay and buy secur​ities​ at 50 to 60 cents​ on the dolla​r,​ and rewar​d the greed​ and incom​peten​ce of peopl​e who made stupi​d and short​sight​ed busin​ess decis​ions?​

And who, by the way, made milli​ons and milli​ons of dolla​rs along​ the way.

The AVERA​GE SALAR​Y for an emplo​yee at Goldm​an Sachs​ in 2006,​ inclu​ding secre​tarie​s,​ was $​521,​000.​

Look how the mass media​ is pumpi​ng for the passa​ge of this measu​re.​ The "​doom and gloom​"​ progn​ostic​ators​ are tryin​g to scare​ us into going​ along​ with this insan​e propo​sal.​

Any clear​ think​ing perso​n can see what they are doing​ -

So the banks get charged 6 percent to loan money to each other. So the flow of practically free money, something that helped cause this whole "crisis", has been shut off. That is what you call a "credit freeze"? That is what is going to cause massive financial failure?

I call it SANITY. Loan money only to people who can pay it back - revolutionary thoughts!!

Don't be fooled - look at the situation clearly.

And call your Representative - because it looks like the Senate is going to pass this giveaway tonight.

Do it now!

Before it's too late!

BT

October 6, 2008 09:39 AM

#1. Sept.11th Never Investigated Properly ? #2. The ILLEGAL Invasion & Occupation of Afghan. & Iraq. Based on LIES ? #3. and now, in a short week, Numerous Congress Members do a Complete Switch from Nay to Yea. ?? Well Folks, HERE is The Reason Why > http://www.youtube.com/watch?v=Jd5uaScAUSQ

Thank you for your interest. This blog is no longer active.

 

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