HRM Deborah of Israel: The US Band-Aid Bailout Plan Revisited: Stocks Fall 300+ Points On Bailout Anxiety

President Urges Congress To Quickly Pass Bill

29 September 2008

US-The Dow industrials fell more than 300 points Monday on anxiety over the government's bailout package.

Investors were also looking over Citigroup Inc.'s deal to buy Wachovia Corp.'s banking operations.
A man uses an ATM at a Wachovia bank branch, on 29 September 2008 in Miami, Florida. Citigroup Inc. announced today that it will buy the banking operations of Wachovia Corp. for $2.1 billion and assume its senior and subordinated debt.

Investors fear the government's plan to buy up toxic debt won't be sufficient to resuscitate nearly frozen credit markets. Demand for Treasury bills, seen as the safest of investments, remained high ahead of the vote.

The deal for Wachovia's banking operations removed concerns about the bank's health. It has billions of dollars in soured mortgage-related assets.

Trading in other markets around the world were also down.

Meanwhile, the legislation to bail out the reeling financial industry survived a key test vote on the House floor Monday morning.

Members of the House voted 220-198 to move the bill forward. They approved ground rules for its consideration in the chamber, including three hours of general debate and a final vote, likely by midday.

The initial action on the House floor came not long after President George W. Bush once again urged passage of the legislation. He said that a yes vote would be "a vote to prevent economic damage to you and your community."

Calling a $700 billion bailout plan "strong and decisive legislation," Bush also said in a statement made at the White House that the bill is needed to "keep the crisis in our financial industry from spreading" across the economy.

Bush sought to assure Americans that approving the plan is the right thing to do, even as he acknowledged that a vote on the plan would be a difficult one for lawmakers. He said he is confident that the rescue bill will help stabilize the ailing economy.

A House vote is planned for Monday. Senators are to follow later this week.

Bush spoke amid continued nervousness in financial markets at home and overseas.

Bush argued that jittery U.S. taxpayers will benefit from a number of safeguards that lawmakers wrote into the pending legislation during weekend negotiations on Capitol Hill.

In an earlier statement released by the White House, the president said, "Without this rescue plan, the costs to the American economy could be disastrous."

Bailout Praised

Democratic leaders in Congress are praising the biggest U.S. bailout in history as a vital move to shore up the sagging economy.

House Speaker Nancy Pelosi said Sunday that the proposal is not a Wall Street bailout. Instead, she called it a buy-in to help the economy get turned around.

"No longer will the U.S. taxpayer bail out Wall Street, and that's the message," Pelosi said late Sunday. "It's not about a bailout of Wall Street ... it's for the people saving for the education of their children, so small businesses can get credit."

Pelosi spoke to reporters at the Capitol just after the final legislation was released Sunday evening and as House Republicans and Democrats met privately to review details and gauge support.

Senate Majority Leader Harry Reid of Nevada said Congress won important concessions from the Bush administration in negotiating the bill. He said the White House wanted a blank check and lawmakers would not agree to that.

Reid said hearings will be set this fall to look into what precipitated the banking crisis. Reid said quick action was necessary to prevent paralysis of the country's economy.

"Every American has an interest in fixing this crisis," Reid said. "Even now it's difficult for people to get a car loan. Even now it's difficult ... to get a student loan. The market is frozen for houses in many neighborhoods in our country. We've got to change this and that's what this legislation is all about."

Sens. Barack Obama and John McCain are gingerly embracing the deal. McCain said "doing nothing is simply not an acceptable option."

Interviewed Sunday by ABC's "This Week," McCain said, "This is something that all of us will swallow hard and go forward with."

Meanwhile, Obama said he's inclined to back it because he thinks "Main Street is now at stake."

The rescue is the largest government intervention in financial markets since the Great Depression. It would let the government take over huge amounts of devalued assets from beleaguered financial companies in hopes of unlocking frozen credit.

Who Wins, Who Loses?

The plan creates a lot of potential short-term winners, as well as some losers.

Wall Street and the banking industry are perhaps the biggest winners. They can start making loans again because the Treasury Department will start buying up their troubled mortgage-related securities. The agreement authorizes Treasury Secretary Henry Paulson "to establish a troubled asset relief program, or 'TARP,' to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the secretary," the agreement said in part.

If the bailout works as intended, there will be other winners, too: anyone trying to borrow money for cars or student loans, or even to open new credit-card accounts. But top executives at troubled financial institutions are in the losing column because the proposal limits how much they can be paid and essentially rules out so-called "golden parachutes" when they leave.

Investors, including the millions of people who have 401(k) and pension plans, should benefit. Failure to reach a deal could have sent global stock markets tumbling.

There's little help for homeowners faced with foreclosure or those who've lost their homes. And the plan won't help people whose houses are worth less than what they owe refinance or get an equity loan.

Commentary:
Something that U.S. President George W. Bush backs makes it a questionable situation especially since his past track record is poor and to rob Peter to pay Paul as to what this looks like, will not help the U.S. economy; but further failure down the road in the long run.