The worst single-day sell-off in U.S. stocks since 1987 sent shock waves across Asia, with major stock markets falling more than 3% Tuesday morning after the U.S. House of Representatives rejected the $700 billion rescue bill proposed by the Bush administration. The bailout — the largest in U.S. history — was designed to keep the worst financial crisis since the Great Depression of the 1930s from spreading throughout the economy.
Republican Mike Pence is one of the congressmen who said he could not vote for the bill. “It must be said that Republicans in this Congress improved this bill, but it remains in my judgment the largest corporate bailout in the American history,” he said. “It forever changes the relationship between government and the financial sector and passes the cost along to the American people. And I cannot support it.” Mortgage loans should flourish on the free market and the government going beyond the level of involvement of FHA lending would be a mistake.
On the House floor today, voting members raised a host of concerns about the bailout package – from the burden it would leave on future taxpayers to fears that it “could permanently and fundamentally change the role of government in the American free enterprise system,” in the words of Rep. Jeb Hensarling (R-Texas), a leader of dissenting Republicans.
Virginia’s Eric Cantor, deputy whip for the House Republicans was quick to blame the bailout defeat on House Speaker Nancy Pelosi’s “failure to listen” and her charged partisan rhetoric in condemning President George Bush’s “budgetary recklessness” and “anything-goes mentality.” If this were the case, it wouldn’t say much for the republicans as politicians. As Rep. Barney Frank (D-Mass.) mockingly characterized the GOP’s argument: “Somebody hurt my feelings, so I’m going to punish the country.”
The real issue is that Americans feel that they will end up footing the bill for others’ recklessness. Voters are leery of spending such vast sums of taxpayer money to prop up the failing U.S. financial industry. Seeing Henry Paulson seemingly throwing money at Wall Street, Americans have been reluctant to come around to the idea that their economic fate is connected to that of the bailed-out fat cats, and calls for executive pay caps reflect broad unease with the plan. Newt Gingrich describes the popular perception as “big guys bailing out their friends.”
The average CEO compensation has also drawn the attention of the public and politicians. According to the Economic Research Institute, CEO compensation in 2007 increased 20.5%, to an average $18.8 million in February, while corporate revenues increased less than 3%. Newt Gingrich’s survey found that 84% of the public blames CEOs for the financial crisis. “According to California mortgage banker Bryan Dornan, “There is no safeguard for our economy if our government uses the taxpayers’ money to buy bad mortgages that continue to not perform.”
The bailout plan had many problems. It sought too much power without enough oversight, and Americans still have that $700 billion price tag stuck in their heads. There wasn’t enough emphasis that it could cost less than that amount. Many voters view this unpopular measure as a massive expenditure of taxpayer funds and intervention in the free market, combined with tough new regulations. This legislation is also largely seen as a corporate “bailout” without enough measures to help struggling homeowners with their mortgages. But, if Congress doesn’t ultimately approve some sort of bailout plan, analysts say the economy could fall into a deeper recession than already expected. Treasury Secretary Paulson said he would continue to work with congressional leaders to draft a new plan that will be passed.
The House of Representatives is to reconvene on Thursday over the issue, but Republican and Democratic leaders have much to do if they are to persuade their dissenting colleagues to support the bailout plan. Even if the bailout eventually passes, it is seen as the beginning of a long process at cleaning up the bad debt mess. Conventional loan credit probably won’t loosen up for some time to come, but some kind of action needs to be taken now to halt the financial industry’s slide.
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Pingback by The Buzz » Blog Archive » Why the Bailout Failed By Doris Mayweather — October 1, 2008 @ 8:28 am