$700bn Bailout is shot down by House of Rep Vote (205-228), US stock market plummets

http://www.msnbc.msn.com/id/26884523/

by kirse • 18 years ago

130 189 18 years ago

msnbc.msn.com

wd402• 18 years ago

and the dollar surges! (re: biggest dollar gains in 15 years)

dougp• 18 years ago

where do you see this I'd like it to be true.

wd402• 18 years ago

http://business.timesonline.co.uk/tol/business/markets/artic... "As nine central banks used currency swaps to oil the wheels of dollar liquidity in the money markets, sterling plunged and was on course for its steepest one-day drop against the dollar for at least a decade and a half."

quasimojo• 18 years ago

good! lawmakers on the radio today were saying 90% of their callers were against it. this is a victory for the stingy saver who doesn't obsess over vacation homes and luxury cars. every THING is about to go on sale, and the prudent will have their day.

taxpayers who pay their bills and live wisely don't need credit, they live on cash. these people should not be punished for the greed of everyone else on wall st and main st

run4yourlives12• 18 years ago

this is a victory for the stingy saver who doesn't obsess over vacation homes and luxury cars.

Unfortunately, 90% of America isn't described in the above sentence.

fallentimes8• 18 years ago

Well, in a way, they sort of had it coming with their negative savings rates and all. Personal accountability really does go to die in the States although other countries are approaching our levels. Fat? Liposuction. Ugly? Plastic surgery. Don't want to exercise or eat right? Pills. Poor? Welfare. Don't know what you're doing with massive gobs of money? $700 Billion Bailout!?

nihilocrat• 18 years ago

Yeah, I bet those 'stingy savers' didn't go to college, and thus accrue the student loans that are practically required to get an education these days.

transburgh• 18 years ago

What about those who are young and hacker-ish that have not had the chance to save (I mean compared to someone that has been working for 20 years)? Times might get a little tough.

tomjen• 18 years ago

Well, we will hack through it.

kirse4• 18 years ago

Well, if you're worth nothing you have nothing to lose, that's the way I see it.

run4yourlives12• 18 years ago

You guys are much better off. Those of us with houses and bills are going to hurt. Those of us with stretched lines of credit and a penchant for living above our means are really going to hurt.

biohacker423• 18 years ago

The Fed can still print money and screw us savers.

jeremytliles• 18 years ago

Ok, here's the thing: even if you disagree philosophically with the legislation that they put together, you still would be wise to be very worried about the overall state of the economy due to tight credit. Many businesses (good, solid, profitable businesses that employ hard-working people) fund their operations via credit markets that have seized up. Absent some kind of intervention (and I for one would like to see more ideas on the table), even your ideal "prudent" person will probably suffer.

Just because you've done everything prudently on your own micro scale doesn't mean macro events can't hurt you.

davidw9• 18 years ago

I can't pretend that I understand this whole thing, and am quite suspicious of anyone that says they do, who does not report on it more or less full time and have a good grasp of economics, but... one analogy that's come to mind is a car stopping. In one case, with the brakes, in another, by hitting a rock wall. The end result is still a stopped car, but there are some other differences that might be of interest to the occupants.

In any case, most of the discussion that's worth anything is coming from economists, of which there are a wide variety to read. Most people on sites like this one don't seem to have the expertise to say much that's useful, either for or against (and that includes me, thanks).

http://economistsview.typepad.com/

http://econlog.econlib.org/

http://www.marginalrevolution.com/

http://www.economist.com/blogs/freeexchange/

http://economix.blogs.nytimes.com/

http://delong.typepad.com/

http://www.ft.com/cms/s/0/290ca9f6-8d8b-11dd-83d5-0000779fd1...

As you can see even those guys are peddling their own ideologies to various degrees, along with everyone else with vested interests - and that's a lot of people, because 700 billion combined with a potential collapse of the economy is pretty high stakes. This doesn't make it easier to understand.

michaelneale• 18 years ago

I remember reading: "A lack of capital kills you slowly, a lack of liquidity kills you like a slug to the head" - I think the credit crunch is more of the latter (or people claim it is). Who knows...

gills3• 18 years ago

Part of freedom is being free to fail. Most of the people I have observed fighting this thing are doing so with eyes wide open, knowing full well the economic consequences of defeating it.

natrius6• 18 years ago

The bailout isn't to help taxpayers get credit. It's to help businesses get credit so the prudent will still have jobs in a month. Everything may go on sale, but you can't go on a shopping spree when you're unemployed.

The vast majority of the bailout criticisms I've heard are woefully uninformed.

kingkongrevenge12• 18 years ago

You can't wave a magic wand and create real reserves to lend. Real credit comes from reserves of savings. This is about stopping a deleveraging process in the financial markets, not about ensuring the flow of credit to businesses. That's just the propaganda.

Credit demand is collapsing as an economic bubble bursts and this is DRIVING the deleveraging. Not the other way around. If the economy were truly starved for credit you'd see 8% rates on CDs as banks scramble to raise reserves to lend out.

echair• 18 years ago

This is a victory for the stingy saver

Not if he has his savings in stocks. In fact, if he followed the conventional wisdom and put (100 - age) percent of his assets in stocks, a 40 y.o. stingy saver just lost 5% of his savings today alone. Which is almost certainly more than his share of the $700 billion.

byrneseyeview2• 18 years ago

Tax rates are negative, zero, or nominal for most people. There are perhaps 100 million people who pay a substantial amount of income taxes in the US (I am fudging around various numbers to make the math easier, here; see http://www.taxfoundation.org/research/show/1410.html for information on how many people simply don't pay taxes). So that's an average of $7000 per serious taxpayer. $7000 is 5% of $140,000. Do you think a typical 40 year-old taxpayer has a $140,000 equity portfolio?

krschultz5• 18 years ago

Not exactly true, there are plenty in good financial standing who had prime mortgages on their single residence, a place they have owned for 10+ years, that because of the depreciation in the market can now no longer sell their home without owing a huge amount to the bank for the difference. That means you can't sell your home if you have to, what if your job tells you that you have to move? What if you have to sell your house to use the cash for medical bills?

There are a lot of people really hurting from this, just because we're a bunch of hackers living in apartments saying HAHA now I can buy a house! Doesn't mean that families who made previously responsible decisions are not getting really hammered. To say "GOOD!" to this is incredibly callous and most likely a sign of great ignorance to what is really going on.

burnout1540• 18 years ago

Unless you live in an unbelievably depressed area like downtown Detroit (and maybe not even then), home prices in America are substantially higher than they were 10 years ago. So anyone who has had a fixed rate mortgage for 10+ years (unless they've been treating their house as an ATM) is looking at a profit if they sell their house.

In fact, according to the Case-Shiller index, homeowners in the 20 largest metro areas of the U.S. have seen their homes increase in value by over 60% between January 2000 and June 2008. Of course, this is down from 106% as of the summer of 2006. Falling house prices have definitely put a large number of homeowners underwater, but these people either bought in the past few years or took out one or more HELOCs (home equity line of credit).

TweedHeads• 18 years ago

Where can we see how they voted?

I want to keep an eye on those 205 SOBs

furiouslol• 18 years ago

http://clerk.house.gov/evs/2008/roll674.xml

gills3• 18 years ago

it's here as well: http://www.govtrack.us/congress/vote.xpd?vote=h2008-674

Jasber• 18 years ago

Can anyone explain to me why the Republican's went against Bush on this one?

I've been reading and racking my brain and it doesn't make sense to me.

lisper• 18 years ago

http://rondam.blogspot.com/2008/09/ive-never-been-so-happy-t...

railsjedi2• 18 years ago

Wow. And it's only Monday. Things are going to get exciting this week. Dow 8-9k.. any predictions?

Fortunes are made buying in bear markets. Though I wouldn't suggest its easy to recognize the bottom.

biohacker423• 18 years ago

8K would be a reasonable valuation.

fallentimes8• 18 years ago

Based on what? Historical P/E FCF valuations?

briansmith2• 18 years ago

Stocks are only down ~6%. The Dow is regularly going up and down hundreds of points at a time these days, -571 points is not really that big of a deal.

Plus, what would you expect to happen? Investors were counting on about $1 Trillon of free money from the government, and then the government pulled it back at the last minute. In a few days there will be news of a new deal and the DJIA will be up 500 points again. And, if the House of Representatives keeps doing its job, then the DJIA will fall 500 points again when the next "no" vote comes.

run4yourlives12• 18 years ago

Well, I wouldn't equate a single day's loss to mean much. The DOW is going to get lower and lower, even if it has a few blips here and there.

The key is this: The DOW dropped 500 points because nothing happened. Theoretically, the markets are in the exact same position they were in Friday, yet they fell.

Once more Wachovias start pilling up, that's when you'll see the slide begin.

prospero• 18 years ago

Same exact position as Friday, minus the prospect of $700 billion. That's not a trivial difference.

tlrobinson2• 18 years ago

And while it's the biggest single day point loss, it's not even in the top 10 percentage losses.

kirse4• 18 years ago

Not to mention the majority of it bounced back the next day.

yummyfajitas• 18 years ago

Did anyone notice the title of the bailout?

"To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes"

I think the real reason it failed is that they didn't title it "Flags for Orphans and other stuff".

briansmith2• 18 years ago

I came here to post the same thing. I was sure that I had found the wrong roll call aftering seeing the title of the bill.

gaika• 18 years ago

The next bill will be titled:

To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to software developers, information architects and dolphin trainers

samwise• 18 years ago

People assume that 1.2 trillion was lost(stock market). However that money still exists, just the ownership has changed. Today was probably the largest transfer of wealth ever.

In my opinion this is a good thing. You can't have unchecked growth forever. You need to have a downturn to jolt consumer confidence and investor confidence.

slackerIII2• 18 years ago

So when my portfolio dropped today, who exactly got that money? I didn't sell any stocks, mind you. I just had X dollars worth of stock this morning, and now I have < X.

jodrellblank7• 18 years ago

It doesn't still exist - it never existed in the first place.

ohhmaagawd2• 18 years ago

OMG. Transfer to who?

you are clueless dude... there is wealth creation and wealth destruction. try an econ 101 course!

azharcs4• 18 years ago

A quote from Wall Street is perfect here. "It's not a question of enough, pal. It's a Zero Sum game - somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred - from one perception to another. Like magic."

coliveira• 18 years ago

Each day, only a small part of a company's stock change hands. However, the price of all stocks change, based on that valuation. That is what happened, a lot of stock was valuated as less then it was before (which means that paper money just disappeared).

netcan9• 18 years ago

That's an insane reality of US legislation. Was it always like this?

How can you trust a body that operates like that. Imagine running a company like that.

fbailey• 18 years ago

It's a common but bad comparison, a country is not a company the political actors act not as leaders in the sense of a company. It's a constant process to find common ground between elected representives. If you are looking at political processes don't think about decisions and clear statements think about a permanent negotiation to somehow muddle through. It's basically a very good system to get something done without giving anybody too much power. The alternative is Stalin.

hooande• 18 years ago

This is a Substitute Bill. All of the language of the uniformed services, volunteer firefighters etc was replaced completely with the economic bailout language. It's done commonly in the house to expedite legislation because they still have to follow complex rules of parliamentary procedure.

netcan9• 18 years ago

sounds broken

cellis• 18 years ago

So an administration that no one trusts can't pass a bill that would enact the largest transfer of wealth in history - from American people - to reckless financial institutions that don't even trust themselves? Astounding!

arockwell6• 18 years ago

That pretty much sums up my view point. I really don't understand much of what is going on (who really does honestly?), but I certainly know I can't trust anyone involved in this clusterfuck.

timr2• 18 years ago

What's really interesting about this is (IMO) is that the Republicans are the ones largely responsible for the failure. The president's own party is revolting against him.

SwellJoe6• 18 years ago

What's astounding is that 205 of our very fine elected representatives thought it was a great idea. I think I need to dig up that list and send 20 bucks to each of their opponents in the upcoming election.

bayareaguy• 18 years ago

Here's the list - http://www.govtrack.us/congress/vote.xpd?vote=h2008-674

I'm so glad my representative (Barbara Lee) voted against this madness.

nanijoe• 18 years ago

My question though is, what is the alternative?

natrius6• 18 years ago

If those financial institutions fail, they will have to be nationalized. Taxpayers will lose far more than $700 billion. The only way your characterization of the bailout as a net transfer of wealth is tenable is if you're against government intervention in financial crises altogether, which is silly. Unless you also think fractional reserve banking should be illegal, which is also silly.

jodrellblank7• 18 years ago

Why is it silly to make conjouring money out of nowhere illegal?

If there is only $100 in the world, and a bank gives it to you and you pay it back with interest, where does the interest come from?

If there's $100 in the world, and a bank "gives $100" to 10 people, who all have to pay back $100 + interest, where does that come from?

You have to borrow it from another bank. Total money in the world increases, the economy grows, but it's a con, a mirage, a convenient consensual fiction. A system based on eternal growth, which relies on pushing around ever increasing debt for its very existence, where repaying the total debt would require giving the banks back all the money they ever loaned plus all the stuff in the world to the value of the conjured extra. How is this not silly?

mseebach• 18 years ago

IANAE.. but how would nationalization be worse?

Seize a bank when it's in trouble, "fix" it, and sell it in a public offering. If the income from the sale nets more than the government spend to fix it, that profit is distributed to the original shareholders.

This happened i Sweden in the early 90's. Some banks were in trouble, and the government said that they'd help them, but by nationalization. One of the major banks were then suddently conveniently able to get some capital, and survived on it's own.

jumper2• 18 years ago

I can't believe everyone is taking this comment seriously. I happen to also think that a collapse will cost the U.S. far more than $700 billion, but they try to imply this bailout is the only way to prevent that collapse. Also: "The only way your characterization of the bailout as a net transfer of wealth is tenable is if you're against government intervention in financial crises altogether..." The only way you can think this is if you think that, providing me with a straw man to rail against! And of course the argument against the straw man is essentially worthless name calling in and of it's self, "...which is silly." Ah, a quality, well reasoned argument there! Then pretty much lather, rinse, repeat for the next sentence... maybe he's just a troll? I guess I rose to the bait, but I'm shocked such a comment is taken at face value by everyone else.... Looks like two DH0s, a couple of straw man attempts, and although I don't know enough to say much about the first sentence, it does seem like a claim made with out any proof\reasoning.

And never mind the fact that even if you support a bailout this one was setup with language to specifically prevent oversight of any kind and would hence almost certainly be extremely corrupt, which rather does characterize that bailout as an attempted net transfer of wealth to me.

Harkins2• 18 years ago

http://projects.washingtonpost.com/congress/110/house/2/vote...

If you're interested in how specific Representatives voted, we (I work at the Post) grabbed the data before house.gov keerashed.

SwellJoe6• 18 years ago

I'm surprised by the vote tallies. Democrats voted 140 yes and 95 no, while Republicans voted 65 yes and 133 no.

So, either Republicans (in the House) have more integrity than I'd given them credit for lately (and more than Democrats, on the whole), or I have less understanding of the bill than I thought I did.

Also, the Washington Post is either a little bit batshit crazy, or they have a strange sense of humor: You can sort the results by astrological sign. If you really wanted to have one more sorting type...the length of time in office would be more interesting to me (and not indicative of being ready for a quiet retirement with fewer disturbances in life).

arockwell6• 18 years ago

I think a simpler line of reasoning is that the Democrats have a bit more control over the bill, and have been able to get in terms that Democrats favor more than the Republicans have been able to.

newt0311• 18 years ago

From what I heard, Peloisi gave a startlingly bad speech before putting the bill up for a vote. Something along the lines of how this was all the fault of Bush and his policies and then she tried to tie this to the federal deficit. Not sure. I need to find a copy and read it to get a better idea. Even without that speech, there was a lot in this bill to dislike. Namely, giving the sec. of the treasury a check of $700 billion with absolutely not controls is a patently idiotic thing to do.

Harkins2• 18 years ago

It's "strange sense of humor". The original creators of the app thought it was funny.

If I had my druthers, we wouldn't waste ink to put astrological bullshit in the paper every day.

(Length of time in office would indeed be pretty cool. I'll run it by Politics.)

cbrinker• 18 years ago

This bill cannot pass. We will only make the problem that much worse in the end. We will be proping up this failed system to continue on. The legislation is so vague and flimsy it's virtually worthless.

The patching of the credit liquidity crisis right now is like using corks to patch a leaky submarine. Not only that, but you don't have enough corks to patch all the holes.

We are going to see a large recession in all of our markets. Even if you pass this bill, no serious economist knows the extent of the financial crisis. All of them can gaurentee, though, that it will be far above $1tril.

Don't fall for this nonsense the politicians and the rich are spouting about. They only want to sustain this failed lesse faire market and continue to benefit from it. We need our economy to be entirely restructured and this is the time to do that.

soundsop3• 18 years ago

Good. Now get to work devising a bill that has more oversight and whose tactics are more agreed upon by economists (capital injection a la Sweden in '92: http://www.nytimes.com/2008/09/23/business/worldbusiness/23k...). Sweden spent 5% of its GDP but recouped 3% of GDP, for a 2% GDP net cost. Did anyone believe that 60% of the money spent by this defeated bill would have been recouped?

fallentimes8• 18 years ago

Brilliant article - I've been sharing it with friends all day.

krschultz5• 18 years ago

Well up to 40% could default on them before you got to that point. Right now no one knows what the rate will ultimately be. In some areas it is already 60%, but in some areas it is 5%, so 40% nationally would be a very high number. At that point the better question would be what to do with so many bankrupt people.

soundsop3• 18 years ago

Remember, the 700 billion would purchase the worst bank assets, so presumably the associated mortgages would default at significantly higher rates than the national average.

msg• 18 years ago

I forget where I read this (Andrew Sullivan?). Someone predicted that now the Democrats will put out a new bill and it'll be voted through the house along party lines. Bush could veto it in the middle of his financial armageddon, or sign something with real teeth in it...

It seems like just buying equity in the failing companies is a more direct way to deal with the problem than throwing money at the problem, in exchange for promises that Paulson will write up warrants that benefit the American taxpayer.

fallentimes8• 18 years ago

Less than 75 years ago, it was essentially illegal in this country to be black. I wouldn't trust our government to clean up dog shit let alone handle $700 billion dollars trying to bail out our retarded amateur-hour financial institutions.

njs• 18 years ago

true

tlrobinson2• 18 years ago

Forgive me if this is obvious, but I'm not sure most people realize that this wouldn't be $700 billion going straight from taxpayers to banks. The actual cost to taxpayers will be much less. The $700 billion would be used to purchase assets from banks, and sold to investors at a later time.

krschultz5• 18 years ago

I've been saying that too, and yet most people don't realize that it would based off the default percentage. Do we really think 100% of people would default? I don't.

chaostheory3• 18 years ago

well when you don't know how much the asset was bought for and how much the gov will sell it for - that's all just conjecture. Records of the transactions themselves will not be publicly available; they will only be given to two small committees.

soundsop3• 18 years ago

The $700 billion is a balance sheet number. My understanding was that the total amount to be spent had no preset limit in the defeated bill. In the end it's true that nobody knows what it'll cost. It cost Sweden between 0 and 2% (depending on accounting method) of their GDP in 1992 according to http://www.nytimes.com/2008/09/23/business/worldbusiness/23k.... The $700 billion figure is about 5% of US GDP.

patrickg-zill• 18 years ago

You cannot fix a structural defect with wallpaper.

azharcs4• 18 years ago

Maybe this video really went viral. http://www.youtube.com/watch?v=lsC2k9opOP0

ctkrohn• 18 years ago

In their infinite wisdom, Congress decided to wipe out $1.2 trillion in market capitalization by not passing the plan, thus costing the economy $500 billion more than the bailout would have -- assuming the bailout would have no effect at all. Brilliant.

jhancock2• 18 years ago

uh...wrong. You cannot know if investor confidence will be stronger or weaker with this bailout. Time will tell and we only get to play it one way. There are no "do overs" here.

MaysonL2• 18 years ago

One point not mentioned in the article. The subgroup of the House that was most in favor of the bill were those with the least conflict of interest between their personal political future, and the good of the country as they perceived it: the Representatives who were not running for reelection.

They were overwhelmingly in favor.

What does that say about the state of our democracy

jhancock2• 18 years ago

You can read this different ways. "those with the least conflict of interest between their personal political future" But those not up for reelection could do business as usual, right? Most of us think that "business as usual" means legislation not in the interest of the many.

I don't think your perspective is clear.

kirse4• 18 years ago

Just as a heads up, this vote now passed: http://money.cnn.com/2008/10/03/news/economy/house_friday_ba...

$700bn Bailout is shot down by House of Rep Vote (205-228), US stock market plummets

Related Stories