Senate Sets Bailout Vote
Kurt Brouwer September 30th, 2008
Update: The Senate passed the Emergency Economic Stablization Act of 2008 by a 74 to 25 margin. On to the House. The House vote should happen tomorrow.
The U.S. Senate has set a vote on a sweetened financial recovery bill that appears likely to pass. With the changes, there is a fair chance the House will pass it too. This Bloomberg piece [emphasis added] has the details:
Senate Sets Bailout Vote, Sweetens Plan With Deposit Insurance (Bloomberg, October 1, 2008, James Rowley and Brian Faler)
The U.S. Senate set a vote for tonight on a $700 billion financial-rescue plan, tying it to an increase in bank-deposit-insurance limits and tax breaks to win support from Republicans.
The Senate agreed to vote on the legislation along with the measure temporarily raising the limit on federal deposit insurance to $250,000 from $100,000. That increase was proposed by Republicans critical of the plan authorizing Treasury Secretary Henry Paulson to buy troubled debt from lenders, which was rejected by the House on Monday.
Also linked to the legislation is a two-year extension of tax breaks that will save individuals and corporations about $149 billion over the next decade, another move popular among House Republicans. Two-thirds of House Republicans and 40 percent of Democrats defeated the bailout plan on a 228-205 vote. President George W. Bush and Senate leaders had vowed to revive the legislation.
The Senate is expected to pass the bill, with most Democrats and Republicans behind it. There’s also increased optimism the House will go along, as pressure mounts on lawmakers to help restore confidence in the banking system.
After a week-long torrent of calls and e-mails from angry voters opposing the rescue package, the tide turned after markets plunged on Sept. 29 in response to the House vote…
I have mixed emotions about the financial recovery plan. Nonetheless, I expect it to pass and I hope it works very well. If it works as advertised, then that would be good.
It is ironic that so many voters opposed the legislation initially because they viewed it as a bailout of Wall Street. It was not a bailout in any sense I could see, but that is how it was perceived. But, once the stock market tanked on Monday, voters changed their minds and now support for the plan is much stronger. The changes to the plan will also let those Democrats and Republicans who voted against it save face and vote for it on the second try. Ah, don’t you love politics.
See Will The Guilty Pay — In Washington or Wall Street? and Financial Bailout Failure Roils Markets for more.
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One thing I would love to know is if the people who called in supporting the recovery plan were the same people who had called earlier in the week against it. That is, did people really change their minds, or were they different people calling in?
Personally I don’t know what I think about this plan, it’s beyond my grasp of economics right now. My interest is mainly based on the outcome, less so on my free-market ideologically. Of course, I don’t really know what will lead to the best outcome so I find myself tempted to fall back on ideology. I wonder if those who are calling their congressmen are also so unsure about what they want congress to do that they call one week for the plan, and the next week against it?
Just a thought…
That’s a good question Steve. I suspect the majority who were opposed to the rescue package became less certain of that after Monday’s market decline. And, that very decline motivated lots of less ideological folks to call their representative when they found out how much their 401(k) plan account fell.
I’d love to see the answer to your question. Given how the House’s web site performed [it crashed], I doubt if their call logs are very accurate though.
The bank lending data goes back to 1947 at the St. Louis Fed. Over that time, lending has grown exponentially. And, there have been significant downturns that coincide with periods of economic recession. Right now, lending shows positive growth, but if we do go into recession, that will certainly slow. Nonetheless, lending is about 50% higher than it was in 2001-2002.
I do not agree with you, it is a bailout. The fed is going to pay a premium price for sub-prime already in default paper. So, these companies get money for nothing. The companies get bailed out of their bad decisions. Other companies that did not make these bad decisions are not going to benifit, but will continue to have to compete against companies given an unfair advantage due to poor business practices and government intervention.
I am still calling my representative and senator and telling them no to the purchase of these MBS papers. If they want to give these bad players breathing room to WORK OUT their indescretions, then changing Mark-to-Market and lending money to players that still have liquidty (the non bad players) so that lending can continue unabated, I will support that.
Stoner — By bailout, you may mean something other than what I mean. In all the cases — Bear Stearns, Lehman, Fannie, Freddie, AIG, WAMU, Wachovia, the common stockholders got crushed. No bailout there.
In terms of bondholders, we do not yet know how the rescue plan — or bailout — will actually work though. The Fed may pay more for some mortgage debt than current prices or the lack thereof would indicate. Or, the Fed may pay current prices. We just don’t know yet.
As I understand it, I don’t think I like the structure all that much, but there are many details we just do not know.