FINANCIAL CRISIS: More On The Meltdown II
Candidates, Bush urge reviving financial bailout
Associated Press, September 30, 2008
[President Bush] said his administration would work with congressional leaders to get the defeated $700 billion relief package back on track.
[Senators] McCain and Obama called on lawmakers in their parties to stay at work until an acceptable plan is assembled.
Both called for raising federal deposit assurance on:
• deposits,
• savings accounts and
• bank certificates of deposit
from the present $100,000 to $250,000.
Obama issued a statement saying significantly increasing federal deposit insurance would:
• help small businesses,
• make the U.S. banking system more secure,
• restore public confidence in the nation’s financial system.
The legislation would have:
• allowed the government to buy bad mortgages and other deficient assets held by troubled financial institutions.
• placed caps on pay packages of top executives that accepted help from the government, and
• included assurances the government would ultimately be reimbursed by the companies for any losses.
The Treasury would have been permitted to:
• spend $250 billion to buy banks’ risky assets, giving them a much-needed cash infusion.
There also would be:
• another $100 billion for use at the president’s discretion and
• a final $350 billion if Congress signs off.
If successful, advocates of the plan believed it would have helped lift a major weight off the already sputtering national economy.
Treasury Secretary Henry Paulson:
• warned [after the vote] of a credit crunch that would affect American businesses and
• said families would find it harder to get student loans and car loans.
Dow plummets record 777 as financial rescue fails
Associated Press, September 29, 2008
The failure of the bailout package in Congress literally dropped jaws on Wall Street and triggered a historic sell-off—including a terrifying decline of nearly 500 points in mere minutes as the vote took place, the closest thing to panic the stock market has seen in years.
The Dow Jones industrial average lost 777 points Monday, its biggest single-day fall ever, easily beating the 684 points it lost on the first day of trading after the Sept. 11, 2001, terrorist attacks.
As uncertainty gripped investors, the credit markets, which provide the day-to-day lending that powers business in the United States, froze up even further.
“This becomes a problem because Wall Street is very uncomfortable with uncertainty,” said Gordon Charlop, managing director with Rosenblatt Securities.
“The bailout not going through sends a signal that Congress isn’t willing to do their part,” he added.
While investors didn’t believe that the plan was a cure-all and it could take months for its effects to be felt, most market watchers believed it was at least a start toward setting the economy right and unlocking credit.
“Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that,” said Chris Johnson, president of Johnson Research Group.
Before trading even began came word that Wachovia Corp., one of the biggest banks to struggle from rising mortgage losses, was being rescued in a buyout by Citigroup Inc.
The Federal Deposit Insurance Corp. lists more than 110 banks in trouble in the second quarter, and the number has probably grown since.
Wall Street is contending with all of it against the backdrop of a credit market—where bonds and loans are bought and sold—that is barely functioning because of fears that anyone lending money will never be paid back.
More evidence could be found Monday in the Treasury’s three-month bill, where investors were stashing money, willing to accept the tiniest of returns simply to be sure that their principal would survive.
Analysts said the government needs to find a way to help restore confidence in the markets.
A huge drop in oil prices was another sign of the economic chaos [as] investors feared energy demand would continue to slide amid further economic weakness.
The federal Office of Thrift Supervision, one of the government’s banking regulators, indicated that the market was overreacting to the House vote and that its fears about the financial system are misplaced.
But Wall Street found further reason for worry overseas:
• Three European governments agreed to a $16.4 billion bailout for Fortis NV, Belgium’s largest retail bank, and
• the British government said it was nationalizing mortgage lender Bradford & Bingley.
It was the latest sign that the credit crisis has spread beyond the U.S.
Analysis: House vote against bailout wounds McCain
Associated Press, September 29, 2008
The U.S. House made John McCain pay Monday for his politically risky, high-profile involvement in a financial rescue plan that came crashing down, mainly at the hands of his fellow Republicans.
By his own actions last week, McCain tied himself far more tightly to the failed bill than did his Democratic opponent, Barack Obama.
His efforts were aimed at House Republicans, the group mainly responsible for the bill’s demise.
If Congress’ impasse leads to a credit crisis, “it’s not going to be good for McCain,” said veteran Republican consultant John Feehery.
As recently as Monday morning, only minutes before the House’s stunning vote, McCain suggested that his call for a White House summit meeting Thursday, and his visit with unhappy House Republicans that preceded it, had helped clear the way for the bill’s passage.
[But] only 65 of the House’s 199 Republicans went along.
McCain made no direct comment on the House vote for about four hours.
His campaign initially issued a sharply worded statement by economic adviser Doug Holtz-Eakin, who blamed Obama and other Democrats.
Just before House members voted, he said, Speaker Nancy Pelosi, D-Calif., “gave a strongly worded partisan speech and poisoned the outcome.”
House Democrats already had denounced that argument, saying it suggested GOP lawmakers based a crucial vote on pique rather than conviction.
A few hours later, McCain read a statement: “I was hopeful that the improved rescue plan would have had the votes needed to pass,” he said.
“I call on Congress to get back, obviously, immediately to address this crisis.”
Obama “and his allies in Congress infused unnecessary partisanship into the process,” McCain said, adding: “Now is not the time to fix the blame; it’s time to fix the problem.”
Obama’s party is hardly blameless for the legislation’s collapse Monday.
[But] Obama:
• kept more distance from the infighting, and
• questioned the wisdom of injecting presidential politics directly into the negotiating mix.
Obama gave the legislative package tepid support Sunday.
If several Democratic-backed additions stayed in it, he said “my inclination would be to vote for it, understanding I’m not happy about it.”
Obama and many other congressional Democrats called for several changes to the bailout plan, including:
• efforts to prevent further home foreclosures,
• greater oversight of the plan and
• limits on severance packages for executives leaving companies helped by the plan.
All those items were added to some extent.
McCain’s involvement was more direct. He:
• temporarily suspended his campaign last week,
• met with House Republicans in the Capitol,
• heard complaints about the bailout proposal’s costs, structure and details,
• attended the White House meeting.
When the White House session took place, McCain [said little] other than that the House Republicans’ unhappiness needed attention.
Those House members forced several changes in the package on Saturday, and McCain seemed satisfied, if not enthusiastic.
“This is something that all of us will swallow hard and go forward with,” he said Sunday.
He turned out to be wrong on Monday.
Now his campaign must convince a worried electorate and a divided party he is the man to lead them to better times.
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