Bailout bill approved by House; Bush signs, stocks plummet
by Andie Diemer
Oct. 8, 2008
Following President George W. Bush’s signature on a $700 billion bailout bill to help keep America’s economy afloat Friday, the U.S. financial situation began to envelope the rest of the world. On Monday, stock prices plummeted, both nationally and internationally, causing many to reevaluate the world’s banking system.
Even though the rescue package bill, which passed 263-171, was passed in an effort to protect Americans financially, it couldn’t combat the snowball effect of a crumbling economy.
The Dow Jones Industrial Average closed below 10,000, which is the first time it has hit that low in almost four years. It fell 800 points before a late rally pushed it down 369.88 points, at 9,955.50.
The Dow first fell to 10,000 on March 16, 1999.
The Treasury Department set temporary guidelines for hiring money managers to oversee the bailout bill and prevent conflicts from ensuing on Monday as well, according to CNN. Many analysts said they do not foresee many dramatic changes in the short term, though the bill should be more effective in the long run.
Last week, President Bush said the $700 billion rescue package will help restore assurance in America’s financial system.
“It’s going to take a while to get in place a program that, one, is effective and, two, doesn’t waste taxpayers’ money,” Bush said. “It’s going to take awhile to restore confidence in the financial system.”
Since banks are reluctant to administer loans to one another, companies and individual consumers, the rescue package will aim to absorb bad assets, like troubled mortgage bonds. This will allow banks to begin loaning money again.
CNN reported that the Federal Reserve also took action to keep the financial crisis from growing out of control by establishing an additional $300 billion available to banks in exchange for damaged assets on Monday. While this number raises the amount available to $600 billion, they said it may continue to expand to $900 billion.
The Federal Reserve also established short-term loans in an effort to keep global financing moving.
But all of these efforts combined didn’t stop depositors from Europe, Mexico and Brazil from attempting to escape the stock markets.
The German government officials announced Sunday they would backstop all bank deposits after a German mortgage mender rescue plan failed, causing the public to infer economic problems outside of the United States were much more severe.
Many European exchanges also posted some of their worst losses in history. London’s FTSE fell 7.9 percent, France’s CAC-40 index fell 9 percent, Russia’s stock index fell by 19 percent before being halted and Germany’s DAX-30 fell 7 percent, CNN said.
Indonesia’s stocks slumped by 10 percent while Asian stocks fell by 5 percent.
In Asheville, N.C., on Monday, Democratic presidential nominee Barack Obama called for a new federal economic stimulus package.
He said Monday’s stock market drop “is a reminder that the rescue package that was passed last week is not the end of our efforts to deal with the economy,” Obama said. “It is just the beginning.”
He said a new stimulus would encompass relief from high gas and food prices, assistance for both the local and state governments to maintain payrolls and extend unemployment insurance.
While traders shifted capital to safer outlets, such as gold and Treasury bonds, oil prices actually fell 6.5 percent from the record high in July to $87.81.
Even though it may take time to see the economy become stronger, Bush urged believing in the moves the government was making.
“One thing people can be certain of is that the bill I signed is a big step toward solving this problem,” he said.