RISMEDIA, Oct. 1, 2008-(MCT/RISMedia)-The nation’s economy was put on hold Monday, and no one’s sure what happens next. Late yesterday, however members of the House of Representatives tried to assure Americans that legislation would be written swiftly.
On Monday, the U.S. House rejected by a narrow margin a $700-billion bailout of financial markets, a startling defeat that triggered a taste of the financial chaos the plan was meant to halt: It sent the Dow Jones Industrial Average into a 778-point tailspin. Yesterday the market bounced back with the Dow adding 485 points at this writing.
“We are extremely disappointed that the U.S. House of Representatives failed to pass the Emergency Economic Stabilization Act of 2008,” said C.A.R. President William E. Brown Monday. “The tenuous health of the financial system called for a swift yet thoughtful bipartisan response by our elected representatives.”
In the wake of the financial bloodletting, leaders of both parties, opponents of the plan and Bush administration officials restarted talks today and promised to craft an alternative as soon as possible. On a day that should have been spent as vacation, Democrats kept Capitol Hill abuzz as they discussed the direction that should be taken the day after Paulson’s $700-billion bailout was rejected.
“If we don’t act, and fast, a lot of people are going to lose their jobs,” said Rep. Judd Gregg, R-N.H.
U.S. Rep. Peter DeFazio (OR-04), an outspoken critic of the Bush/Paulson bailout, along with Rep. Kaptur (OH-09), Rep. Scott (VA-03), Rep. Cummings (MD-07), Rep. Doggett (TX-25), Rep. Holt (NJ-12), Rep. Edwards (MD-04) and Rep. Hirono held a press conference yesterday afternoon to discuss what should be done to help bail out both Wall Street and Main Street.
“We have to get to the root of the problem and create a bailout plan that doesn’t put our taxpayers at risk,” said DeFazio.
DeFazio believes that the Paulson/Bush proposal is based on a flawed premise: if the American taxpayers spend $700 billion to buy Wall Street’s toxic assets - a plan pundits are calling “trash for cash” - it will create liquidity in our financial markets and will somehow trickle-down to Main Street.
“Now is the time for Congress to act, and renew its efforts to craft legislation amenable to both political parties that will calm the financial markets, address liquidity issues and begin to restore confidence in our financial system. Americans deserve nothing less,” Brown said. “C.A.R. wants to be certain that … housing’s critical role is recognized in whatever legislation ultimately is proposed. We will continue to closely monitor the situation as it develops.”
While Sen. Christopher Dodd, D-Conn. said Monday, “This is the most serious economic crisis in decades, if not ever.” Rep. Doggett (TX-25), countered, “the $700 billion bailout plan was fueled by fear and hinged by haste. We want to address this problem but do so in a serious way.”
DeFazio’s plan is not in any way based on the Paulson/Bush plan. “Instead of throwing taxpayer dollars at the program and crossing our fingers that the plan work, the measure will direct the Administration to take five simple steps, suggested by noted economist and former head of the FDIC, William Isaac, to re- regulate the markets and move America towards a healthy financial future,” he added.
Paulson, the architect of the rejected plan, had warned that failure to act swiftly and decisively would cause banks to stop lending and markets to collapse. Monday proved to be one of the worst days that the markets have seen, however the the Dow rebounded Tuesday, easing fears slightly.
By a vote of 228-205 that scrambled party lines, a group of House Republicans opposed to a massive government injection into markets combined to block the proposal with Democrats who said the bill did not do enough for everyday Americans. In the final tally, 140 Democrats and 65 Republicans voted in support, while 95 Democrats and 133 Republicans voted against it.
The failure unnerved investors, triggering a 777.68-point drop in the Dow Jones Industrial Average, its largest daily retreat ever. Markets had already been under pressure after the banking arm of Wachovia Corp. was taken over by Citigroup in a deal brokered by federal banking regulators to guarantee $270 billion in loans. That followed the government takeover of Washington Mutual last week, the largest bank failure in U.S. history. Both banks were undone by mortgage debts.
Paulson and Federal Reserve Chairman Ben Bernanke had persuaded leaders of both parties during the past week that a clog of bad mortgages and exotic real-estate investments was shutting down the lending system among banks that keeps money circulating through the economy.
“Protecting Main Street by keeping people in their homes will not only benefit individual families, but also will help stabilize the housing market, which greatly impacts the overall U.S. economy,” said National Association of Realtors(R) President Richard F. Gaylord in a statement. “Across the country, Realtors(R) see and feel the loss of confidence experienced by both buyers and sellers in the real estate market and they know firsthand that buyers are finding it harder to get mortgages.”
Experts had also warned that although much of the damage had been confined to financial firms, the whirl of doubt eventually would catch people and businesses seeking loans for making payrolls, buying vehicles or paying for college.
“A sharp rise in unemployment and severe hardship for many ordinary Americans would result from the deteriorating liquidity crisis. In addition, interest rates for those who are able to get a mortgage or credit will be more costly. This legislation, if implemented, would quickly restore liquidity to the mortgage market, which would stabilize the housing market and protect homeowners,” said Gaylord.
Doug Elmendorf, an economist at the Brookings Institution who has worked for the Federal Reserve, said if a deal isn’t reached for some weeks, the probability of a “long and deep recession” is “substantially higher.”
The latest compromise included changes pushed by House Republicans, including an option for an insurance program instead of a $700-billion purchase of bad debts, but several said it was still too much intervention.
“The problems that we are experiencing today won’t be solved by the legislation that was defeated yesterday,” added Rep. Edwards (MD-04). “We are looking to work with leadership to create a bailout plan that will ultimately create stability within the marketplace,” she added.
Democratic opponents gave several other specific criticisms of the bill Monday. Although it limits some executive pay, those limits don’t apply to companies that might benefit from the bailout but avoid selling debts to the treasury. Several lawmakers said the bill did little for the majority of mortgage holders whose debts have been chopped into small pieces and sold to several investors.
Rep. Jeb Hensarling, R-Texas, who was one of the leaders in the opposition, said substantial changes would need to be made for the bailout to win many votes among his colleagues.
“Ultimately some part of the full faith and credit of the government would have to be behind it, but Wall Street ought to be paying for it,” he said.
But Dodd said the basics would have to remain for the plan to get banks lending again. “We will not leave here until we get the job done,” he said.
“There will not be an economic recovery without a housing recovery, and we hope the Congress will move as expediently as possible to resolve their differences,” said Gaylord. “We commend the House members that today voted for this unprecedented legislation. NAR will continue to advocate this legislation, which will benefit Main Street by restoring market liquidity to the financial markets.”
Copyright © 2008, Detroit Free PressDistributed by McClatchy-Tribune Information Services.