Bailout bill approved by House; Bush signs, stocks plummet

foxby 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.

House says ‘no’ to $700 billion bailout, Dow posts record losses

Graphic courtesy of MCT Campus.
Graphic courtesy of MCT Campus.

by Andie Diemer
Sept. 29, 2008

The House of Representatives rejected the proposed $700 billion plan to bail out the U.S. economy late Monday afternoon. The emergency rescue package, which aimed to buy bad mortgages to help stabilize the economy, failed by 23 votes, sending the Wall Street Stock Exchange plummeting before the vote was even complete.

The bill, which lost 228 to 205, would have been the Treasury Department’s biggest intervention since the Great Depression. The Dow Jones industrial average closed at 777 points, the biggest closing point drop in history.

About 60 percent of Democrats backed the bill while only about a third of Republicans supported it.

Jim Barbour, associate professor of economics at Elon University, said this is a situation where action needs to be taken.

“There is going to have to be some sort of intervention take place here,” Barbour said. “There’s lot of ways this could be accomplished and this bill is only one of them.”

The plan would have allowed the government to spend up to $700 billion to rescue banks and other weakening firms of assets, backed by home mortgages that are foreclosing at a record rate.

“This is a bill that is basically bailing out those people that have undertaken risky investments and those investments have not paid off and they are looking at great loss,” he said. “They are looking at assistance from the government to protect their fortunes.”

Because a bank can never be assured they are going be repaid for any loan, the situation only escalated when the banks don’t trust each other, he said.

“Unfortunately, these top-flight financial institutions are now risky loans in themselves,” Barbour said.
President Bush addressed the public before the debate began, urging lawmakers to support the plan even through resistance from taxpayers and voters.

Bush said the vote was necessary to protect the economy and in an attempt to negate claims that the bill would only benefit Wall Street’s top firms, Bush said “A vote for this bill is a vote to prevent economic damage to you and your community,” according to the Washington Post.

Barbour blames the complications on American’s unhealthy relationship with credit, weather on a personal or national level.

He said a substitute bill has probably already been created and will be put forward soon.

“I don’t like the idea that we’re in this situation, but it doesn’t change the fact that we are,” Barbour said.
This can trickle down to local communities, where people may no longer be able to get a much simpler loan for items such as automobiles.

“This affects everything that you do that involves borrowed money,” he said. “Which includes everything from running your credit card to buy a coffee to borrowing the money to buy a house when you graduate and everywhere in between.”

Caroline Fox also contributed to this article.

Bailout bill, impact of taxes worry community

by Andie Diemer
Sept. 24, 2008

As talk heats up about a bill hitting the Congress floor later this week to create a $700 billion package to assist the U.S. economy, many local Elon citizens are concerned the decision will burden them through taxes.

Ben Bernanke, chairman of the Federal Reserve, and other members of the Bush Administration are asking Congress to pass a plan that would assist the U.S. financial firms. It is likely to hit the floor this week.

Jerry Oakley, Elon resident and paint contractor, said the idea of the government intervening to help private businesses doesn’t sit right with him.

“First I thought it was kind of crazy for our government to step in there and do that,” Oakley said. “But they’re at that level, and that might not be the case.”

Oakley blames the investment bankers, who have large salaries and severance packages and sometimes work out of greed by telling people where to investment their money.

He wants them to find their own way out, since they are private entities.

“Nobody is going to bail me out if I’m in trouble,” he said.

The trickle-down impact the taxes may implement is something Elon University freshman Joanna Barratt think will likely happen.

She thinks there should be some aid, but not full assistance.

“With the debt of the federal government, it’s hard to say,” Barratt said. “There should be some help, but with the federal debt, it shouldn’t be a huge, huge amount.”

Elon University Economics Professor Jim Barbour said the American people have an unhealthy relationship with greed, credit and debt.

But he said a bailout will be best.

“It’s a lot like hunting flies with a cannon,” he said. “You’ll kill the flies but you also make a huge hole in the wall.”

While the price tag for the bailout ring ups to an average of $2,333 for every U.S. citizen, this may not be as big of a financial impact on them as they may think, he said.

“It might actually be a benefit,” he said. “We need to keep in mind that these assests aren’t going to be worth zero. The tax burden won’t be $700 billion.”

Watch Elon University freshman Joanna Barratt give her opinion on the bailout: