Archive for Friday, October 3, 2008

Congress clears hotly contested bailout bill

October 3, 2008, 12:29 p.m. Updated October 3, 2008, 1:57 p.m.


On the street

Are you relieved that Congress has reached an agreement on the bailout?

Not at all. I was hoping they would fight that thing until the end and shut it down completely. I don’t feel that taxpayers should be bailing out the intensely greedy people who got us there in the first place.

More responses

— With evidence mounting that the nation faces a sharp economic downturn, Congress on Friday gave final approval to what may be the biggest government bailout in American history, authorizing the Bush administration to spend $700 billion to try to thaw frozen credit markets and prevent a deep recession.

Prodded in part by calls from fearful constituents reporting an alarming drop in their ability to borrow money, the House voted by a wide margin to reverse its earlier defeat of the measure and send it on to the White House. Many lawmakers were swayed by revisions to the bill that offer fresh cash for disaster assistance and extend an array of tax breaks for families and businesses worth an additional $107 billion over the next 10 years.

In an unusual display of urgency, President Bush signed the bill less than two hours later, and Treasury Secretary Henry Paulson said he plans to start spending the money within weeks. The measure gives Paulson expansive powers - unprecedented outside of wartime - to intervene in financial markets by relieving faltering firms of bad assets backed by home mortgages, which are falling into foreclosure at record rates.

Experts said the plan might not be enough to offset widening problems with the overall economy. The Dow Jones industrial average dropped 157.47 points Friday, or 1.5 percent, despite the measure's passage, and gloom lingered over credit markets. The market for short-term credit remained essentially frozen, making it difficult for money-market funds to meet investors' demands and threatening the ability of small businesses, giant corporations, universities and state and local governments to obtain money for day-to-day operations.

Many financial experts warned that the Treasury may soon need to provide short-term financing to companies other than banks.

Meanwhile, there were fresh signs that the credit crisis is taking a toll on the global economy. Friday, the Labor Department reported that the nation shed 159,000 jobs in September, the ninth straight month of job loss. In England, the auto industry cut back to a four-day week in response to falling sales. And the leaders of Britain, France, Italy and Germany plan to meet today to discuss the spreading crisis.

In a statement at the White House, Bush praised congressional leaders for quick action on a measure he has described as essential to averting broad economic collapse. "By coming together on this legislation, we have acted boldly to prevent the crisis on Wall Street from becoming a crisis in communities across our country," Bush said before leaving the White House for his Texas ranch.

Bush acknowledged that many people "have concerns about this legislation, especially about the government's role and the bill's cost." He also conceded that the measure is no magic bullet, and that "it will take some time for this legislation to have its full impact on our economy," which "continues to face serious challenges."

Among the measure's benefits, Bush cited a provision critical to attracting support from House Republicans: a new federal insurance program, funded by the banks, that would cover bad assets. The program would require actuaries to set a value for those assets based on historic mortgage failure rates. The firms would then pay a premium for insurance that guarantees a floor value for those assets, permitting them to be bought and sold.

But House Financial Services Committee Chairman Barney Frank, D-Mass., who led negotiations with Paulson, said Friday that the insurance program is unlikely to be implemented because it would do little to restore liquidity to cash-starved banks.

"No one expects it ever to materialize, including the secretary of the Treasury," Frank said.

Rob Collins, a spokesman for Rep. Eric Cantor, R-Va., the provision's author, retorted: "Barney Frank needs to read the bill. It's mandatory."

Friday's vote capped a period of high political drama that roiled financial markets and refocused the presidential campaign on the economy. It began last month when Paulson and Federal Reserve Chairman Ben Bernanke summoned congressional leaders to an evening meeting in the Capitol to warn of an impending meltdown in global financial markets. Paulson sent Congress a three-page request for $700 billion two weeks ago.

The measure has since grown to more than 400 pages. Formally labeled the Emergency Economic Stabilization Act, it gives Paulson wide latitude to purchase any assets from any firms at any price - essentially deciding which companies will be rescued and which will be left to founder. Treasury officials have said they plan to conduct reverse auctions, where firms compete to offer assets at the lowest price.

The largest banks, including Bank of America, J.P. Morgan Chase, Citigroup and Wells Fargo, own a big share of the mortgage-related securities the Treasury intends to buy. Much of what they own they acquired in deals for companies that didn't last long enough to be helped by the bailout, such as Washington Mutual and Wachovia.

The money will be released in segments, with $250 billion available immediately and another $100 billion released upon White House certification that it is necessary. Congress will be given 15 days to object before Paulson - or his successor - receives the other half.

It is unclear how the program will impact the federal deficit, which is already approaching record levels. Because the money will be used to purchase assets that can theoretically be sold for a profit, the nonpartisan Congressional Budget Office has concluded that it was impossible to judge the program's cost.

What is clear is that the Treasury will have to borrow the money: The bill increases the legal debt limit by $700 billion, to $11.3 trillion.

Lawmakers demanded a variety of provisions to protect taxpayers. Firms that take federal cash must give the government warrants to buy stock so that taxpayers benefit if the firms return to profitability. And if the program is in the red after five years, the measure requires the president to offer a plan for recovering the outstanding balance from the financial services industry.

Lawmakers insisted on strict oversight of the program, including an independent inspector general and a powerful oversight board staffed by the Treasury and housing secretaries, the chairman of the Federal Reserve and other federal regulators.

The measure also limits paychecks for senior managers at firms participating in the program. Treasury may ban excessive salaries and bonuses, as well as multimillion-dollar severance packages known as "golden parachutes," for executives at firms that receive direct infusions of federal cash. Companies that sell damaged assets in the auctions also will be targeted: They will lose tax deductions if salaries for their top executives exceed $500,000 a year, and outgoing managers who take severance packages triple their annual salaries will be required to pay a 20 percent excise tax.

On Monday, the House narrowly rejected the measure, 228 to 205, stunning the White House and sending the Dow plummeting 7 percent. The Senate revived it on Wednesday, adding new provisions to appeal to reluctant House members, including a temporary increase in federal insurance for bank deposits that raised the cap from $100,000 to $250,000.

The Senate also tacked on a separate measure that extends or renews dozens of existing tax breaks for businesses and consumers, including a provision to prevent the alternative minimum tax from adding thousands of dollars to the tax bills of more than 20 million households next April. The addition of the tax package, which will add more than $100 billion to next year's budget deficit, angered some fiscal conservatives in the House. But the changes appealed to many others, and set the stage for Friday's victory.

Compared with Monday, the measure won 58 additional votes - 26 more Republicans and 32 more Democrats. After initially rejecting the bill by a 2-to-1 margin, House Republicans mustered 91 yes votes on the second try, while 172 Democrats supported passage. Voting no were 108 Republicans and 63 Democrats.

Sen. Barack Obama's outspoken support for the package proved critical. The influence of the Democratic presidential nominee, who spent the week dialing no voters, was cited by five vote-switching freshmen as a key motivator. Obama was particularly successful in persuading members of the Congressional Black Caucus, which was deeply divided on Monday. Friday, 13 black caucus members switched to vote for the measure.

"What helped me is Barack Obama, who called and said 'We really do have to do this,' " said Rep. Elijah E. Cummings, D-Md., adding that Obama promised to do more to help homeowners at risk of foreclosure if elected president.

On the Republican side, House Minority Leader John Boehner, R-Ohio, pulled in votes from close allies such as Judy Biggert, Ill., and Pat Tiberi, Ohio. The Republican presidential candidate, Sen. John McCain, Ariz., also worked the phones, but none of the GOP vote switchers interviewed Friday cited him as a major factor.

Rep. Joe Knollenberg, R-Mich., said he decided to vote "yes" after receiving calls from the chief executives of all three Detroit automakers; a bevy of bankers; and Paulson, who called just before the vote.

"A lot of people have begun to change their minds because they can see the heartbreak out on the streets," Knollenberg said, citing reports of potential car buyers being denied loans in recent days.

At 1:23 p.m., as the electronic boards in the chamber showed the vote tally passing 218, the House gallery burst into applause. Within minutes, Bush was on the phone, offering thanks to House Speaker Nancy Pelosi, D-Calif., and House Majority Leader Steny Hoyer, D-Md. Half an hour later, an aide passed Frank a note to say that Bush was trying to reach him as well.

Afterward, the House adjourned for the November elections. But Pelosi said Congress will have more to say very soon about the meltdown on Wall Street.

Rep. Henry Waxman, D-Calif., chairman of the Committee on Oversight and Government Reform, will open hearings next week into the federal bailout of insurance giant American International Group and Lehman Brothers's bankruptcy filing. And when Congress convenes in January, Frank said he plans to rewrite housing finance laws, broaden executive pay limits to more corporations and pursue new regulations to rein in excessive risk-taking on Wall Street.

"Our capacity to generate risk has outstripped our ability to contain it effectively," Frank said. "It would be highly irresponsible, a betrayal of our oath, if we were to stop here."

- Staff writers Steven Mufson and Binyamin Appelbaum contributed to this report.


Tony Kisner 9 years, 7 months ago

Go fill up every car you own, $5.00 gas around corner.

Christine Pennewell Davis 9 years, 7 months ago

so someone please explain how this is going to work for real are our taxes about to jump to out of reach hieghts now or what?

lee66049 9 years, 7 months ago

Scott my bone with McCain is he voted for the bill and he did not name names....this bill is over 1.2 trillion dollars with all the pork that was added. That was a major, major error for McCain and may well cost him the election which he was a long shot to begin with.

Godot 9 years, 7 months ago

"Vote Libertarian. Bob Barr."That is, assuming we even have an election.

humblecommentator 9 years, 7 months ago

America went a little regulated after the Great Depression. It went a little de-regulated after Reagan. It is going a little regulated again. It takes a little socialism now and then to save capitalism. And then it takes robust capitalism to move things forward again.

Scott Drummond 9 years, 7 months ago

John McCain, the Maverick, voted for the pork-laden bill. But when he's President he's going to put a stop to these practices and the future will be just as happy and as bright as Sarah Palin's fantastic, golly gee whiz view of the world. And if you buy that, I got a bridge to nowhere for you......

Sigmund 9 years, 7 months ago

Barrack Obama voted for the bailout bill which at least proves one thing. No practicing Muslim could have voted for this much pork.

BigDog 9 years, 7 months ago

Why do they keep calling it a $700 billion rescue bill?With the additions by the Senate it is around $850 billion.

stuckinthemiddle 9 years, 7 months ago

mommaeffortx2I'm not crazy about regulations... in general I think the less you have the better...but... with something as crucial as lending practices we have seen now what kind of problems we can have when people don't use their brains...and... as we know... we sure can't count on people using their brains...

staff04 9 years, 7 months ago

Congress did the right thing. The consequences of not acting far outweigh the consequences of passing this bill into law.

tangential_reasoners_anonymous 9 years, 7 months ago

"...I warned you,I prepared you,I instructed you,I told you what to expect,All the times and seasons without respect...You, yourselves, know certainly... that the day so cometh."

HW 9 years, 7 months ago

Just remember this when you are voting for senators and representatives. Find out who voted for this bill, and vote their happy @$$ out.

ASBESTOS 9 years, 7 months ago

Well now that the congressmen have lied to us and fleeced us it is now time to listen to the same experts that came up with this "bitter little pill". "It is not enough". are all different editors with news organizations that do not talk to each other and they all came to the same conclusion:"This will not work"I think all of those that voted for this POS bill, need to immediately resign from office, ORThey need to go out into an empty field and self lobotomize with a .357 magnum.These congressmen just did this to "load up on porK" and the Democrats and George Bush just wanted to fatten up theirfirends up on the last days of his Presidency, wnd rip the people off.Funny the most hated President in History an ally with those that hate him the most in the most corrupt undemocratic bill ever put before congress.They say politics makes "stange bedfellows" and a bit of corruption they all can hold their collective noses as they sodomize each other for personal gain.

RogueThrill 9 years, 7 months ago

They should tell us how much the total is including the "sweeteners." You know, just for clarity.

stuckinthemiddle 9 years, 7 months ago

funny that Bill O'Reilly is mentioned... as he recently changed his mind about the bailout and now supported it...because Newt Gingrich convinced him...where have all the conservatives gone?

Jaylee 9 years, 7 months ago

WHAT A CROCK OF CRAP!!!! I CANNOT BELIEVE AMERICA!!! HOW DID THIS HAPPEN?!?!?! prick politicians, what have you done?

Jaylee 9 years, 7 months ago

This comment was removed by the site staff for violation of the usage agreement.

Jaylee 9 years, 7 months ago

Anonymous usermommaeffortx2 (Anonymous) says:let me know if this kinda sums up all this stuff. Aperson goes to a bank, wants a loan for a house, car whatever, they can not afford the bank inits greed says sure here you go knowing full well said person can not afford the loan? now the lending institutes do this thousands of times over start to lose money cry about it then wallstreet starts to feel the heat and now the rest of the people who did not act like a irresponsible child have to help fix the whole mess? so we all get punished for the bad of others?----------------------------------------indeed, this approach was actually taken believe it or not from fred phelps', which says if some do wrong, all must be punished. not saying what fred says is wrong is wrong, but the concept is kinda messed up and similar

blakus 9 years, 7 months ago

Welfare, sure, it costs a lot of money. But the war in Iraq has cost trillions. If the office is won by the republicans, how much more money will go towards this debacle? This should be a time for fiscal responsibility, and the 'conservative' republicans that are elected to office are anything but. The democrats arn't any better. I just hope whoever is elected take the spending of the gov't seriously and not balloon the problem created by Bush after the surplus years of Clinton.

Harry Tuttle 9 years, 7 months ago

Didn't vote for $700 Billion because they were holding out for $850 Billion. When will the mushroom people wake up? I say goodbye Constitution, Hello Facism!

stuckinthemiddle 9 years, 7 months ago

mommaeffortx2 I think it irks most of us...

ASBESTOS 9 years, 7 months ago

Watch out Sigmund, a fatwah will be be declared on you.That was pretty funny.

cthulhu_4_president 9 years, 7 months ago

America is officially now populated by indentured servants to the Secretary of the Treasury.

conservativepunker 9 years, 7 months ago

Morons! Socialized Banking, Pork, Pork and more Pork!! Dennis Moore is such a dope. At least Boyda voted correctly.

Bruce Rist 9 years, 7 months ago

How will this raise gas prices you ask?This is going to deflate the dollar and when the dollar goes down the price of oil goes up. And when the oil goes up gas goes up and the knee bone is connected to the thigh bone.

Scott Drummond 9 years, 7 months ago

Tom & Lee:McCain has staked his run for the presidency, I believe, on his claim that he is a "maverick" & if we, the people, will only elect him Presidnet he will put an end to the evils of porkbarrel spending, earmarks, etc. Well, Mr. Maverick, has some "splainin" to do, if you ask me. Why would anyone in their right mind vote for him in the hopes of ending such practices, when he has just demonstrated his refusal/inability to keep his promise. Please answer that point straight on, if you can. No Clinton, no Obama is a secret terrorist, no main stream media bias, etc. Why are we to trust McCain to end such practices when he just went along with the very evil he derides?

Jaehde 9 years, 7 months ago

Paulson kept saying things were under control, until he suddenly began screaming fire, which would indicate he's either stupid or lying. In either case, why was he left in charge and given more money?We've been set up, once more.All those who voted yes are nothing more than prostitutes servicing their priveleged patrons.

Steve Jacob 9 years, 7 months ago

I think everything was okey, then on Sept 18, 250 billion dollars was pulled out of the bond market, and boom, we had trouble. Just think of say People's bank, doing well, then hundreds of people line up to pull their money out in one day. Now you have trouble.

Godot 9 years, 7 months ago

The author of this bill was none other than the Supreme Crook of Congress, Barney Frank, with the help of this co-consipirator, Chris Dodd, and the Wallstreet shill, Hank Paulson. This is a complete failure of our federal government. Every elected and non-elected official who had anything to do with getting this bill approved should stand trial for treason.

notajayhawk 9 years, 7 months ago

shutnmdown (Anonymous) says: "gas in missouri was 3.07 today:run run for the border"It was $2.93 at the Q-trip at Sterling & Truman Road in Independence. It's been $3.04 at the Valero on 23rd street for a week or more.I thought we were supposed to have $5 gas before summer was over?*****All of you that continue to rail against the bailout ought to look at this story: big retirement funds like KPERS, MOSERS, etc., taking a bath, how do you think the private (as in "tax paying") investors are doing? How do you think Obama is going to pay for "change" with nothing coming in from capital gains tax for the forseeable future? He can raise the rate all he wants - 90% of nothing is still nothing.

newsreader 9 years, 7 months ago

Easy Does It;How is this going to raise gas prices? Ever since the 'credit crunch' oil is down from $150 a barrell to $95 a barrell....

jayhawkerincali 9 years, 7 months ago

Sigh Well, I guess this is the part where I leave work tonight, head to the grocery store and buy up all the water, food, batteries, candles, etc. that I can. We are about to be s-c-r-e-w-e-d.

PosseComitatus 9 years, 7 months ago

I don't even know what to say at this point. We just lost the free market today. This does expose one weakness in the system. If we the public stop spending money with the large corporations they can't skim the money off of the top and buy our politicians from us.

Godot 9 years, 7 months ago

Well, now that China knows our government will bow to extortion and steal $700BN from the taxpayers for them, I wonder how long it will be before China, and others, come back demanding more?Those who wanted to impeach Bush this summer were right. I figured it was too late, that he couldn't do much more harm as a lame duck. He and Congress have just sold us down the river.McCain and Obama are complicit in this capitulation. Both are unfit to serve.

Danimal 9 years, 7 months ago

Hey congrats tax payers! Call your congressmen and thank them for adding $3300 to each citizens portion of the national debt! USA! USA! USA....

superduper 9 years, 7 months ago

Great.It's just like some 20 year old collage student just got their first credit card with a $7k limit. When will America learn? I call it an easy short term fix. The problem is that none of the people voting will be dramatically affected by this bad decision. Our middle class family with zero debt other than our house will on the other hand be affected. Eventually it will catch up with us. Of coarse all the baby boomers will cash in their chips once the stocks go back up then when they eat up all of their money and social security we, their children will be held liable for the debt. The question is, who will we answer to? China?

MeAndFannieLou 9 years, 7 months ago

Happy Black Friday everyone!I recommend a good spending spree this weekend, 'cuz it'll be your last for awhile!~sick and tired!

Christine Pennewell Davis 9 years, 7 months ago

let me know if this kinda sums up all this stuff. Aperson goes to a bank, wants a loan for a house, car whatever, they can not afford the bank inits greed says sure here you go knowing full well said person can not afford the loan? now the lending institutes do this thousands of times over start to lose money cry about it then wallstreet starts to feel the heat and now the rest of the people who did not act like a irresponsible child have to help fix the whole mess? so we all get punished for the bad of others?

Christine Pennewell Davis 9 years, 7 months ago

And I am sorry I do not think you can blame deregulation on this the banks and all lending institutes should havestill used their brains.

PosseComitatus 9 years, 7 months ago

This is not a football game, sitting back playing armchair quarterback about which team is better doesn't cut it anymore. Big multi-national corrporations and the banking cartel own the political system. This Country is broke, we are now making money out of thin air by the trillion. Our annual national debt payments will exceed our GDP by 2020. Taxing at 100% will not pay the payments. As we start defaulting on our debts we will be the target of every other country in the world. Why do you think all of these Countrys are preparing for war? Greed has ruined this Country as it ruined the Roman Empire.

Christine Pennewell Davis 9 years, 7 months ago

I know people do not use brains but this all irks me some.

Steve Jacob 9 years, 7 months ago

"We just lost the free market today"When the government stopped let people short sell, that was the end of free trade. This is just a patch for the real problems, which better get fixed soon. And we will not be able to spend our way out of this, banks will be tighter regardless, and Christmas for sure will be WAY down.

lee66049 9 years, 7 months ago

Uh Scott 3460 Obama was a big leader in getting the house to vote for it...he called members personally in support of the bill. Biden voted for it too. So before you go running off about Maverick, you should know about Barrack Benedict Arnold, and Et Tu Biden.

ASBESTOS 9 years, 7 months ago

My Bet is that this is not gpoing to work. I watched Cramer on MadMoney, and he showed that China, India, Brazil, and Russia are in free fall economically, and that any "exports" will not happen for the United States. Throw in an already shrinking workforce, and additionaly jobless claims, and the "re-valuation" of MSBs, and the reduction in value across the board starting with houses and there is not enough money to fill in that hole.It is crunch time. I hope you are used to living cheaply, because it is going to be a while before we see "growth" again like this artifical shell game we have seen through the last two Presidential Administration.This last 16 years has been based on artifical housing sales, artifical "dot com" stocks, and just misrepresenting and lying about copany assets. I also turn to the GOP for the last 8 years and the Dems for Fannie and Freddie ane the Community Reinvestment act.

samsnewplace 9 years, 7 months ago

WTG Tom! Boy did you ever hit the nail on the head with all the deadbeats on welfare that are too lazy to even try to work. Some are indeed on it for a good reason, the other 95% are bums and there is not any limits put to them, they are on forever. Love your comment!

shutnmdown 9 years, 7 months ago

gas in missouri was 3.07 run for the border

PosseComitatus 9 years, 7 months ago

Abestos,I agree with you on this. I have been lurking on around this site for years, but I never felt the need to join any of the conversations. I just kind of used it as pulse for the views of the city. As I watched this recession develop I was caught completely off guard with this proposal by the Federal Reserve to try and control deflation. I felt that I had to try and warn people of this.

tangential_reasoners_anonymous 9 years, 7 months ago

shutnmdown: "gas in missouri was 3.07 today:run run for the border"... so, the prices are coming down at Missouri Taco Bells?

james bush 9 years, 7 months ago

Chicago 'community organizer' B H(as in Hussein) Obama is motivated/groomed by his association with ACORN, Ayers, and Wright and surely others of the radical left or who knows whatever else.....and when he votes for something, it is only to enhance his bid to be president of the USA and serve his followers/mentors.

Godot 9 years, 7 months ago

srj, who pulled the $250 bn? Was it pulled by the well-healed, heading for the exits on advice from their well-connected fund advisors? Was it pulled by foreign governments? Or was there a hint of orchestration by ole George Soros, looking to add another notch on his "currency destabilizing" belt of dishonor while giving his candidate a boost?

lee66049 9 years, 7 months ago

Blakus....when you refer to Clinton's surplus, you need to add a word...."budgeted" surplus. Even Obama knows to say the budgeted surplus of the Clinton years. It was a shell game.

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