Bye Bye Bailout Financial Fears Mount as Congress Heads for Holiday
One day after the House of Representatives shot down the $700 billion bailout package for Wall Street, many fear that the markets will plunge further. Political leadership, though, will have to wait -- until after a two-day holiday.
As if Monday wasn't bad enough: The US House of Representatives in chaos; the markets in freefall; the surreal appearances of two presidential candidates, both of whom swore bipartisanship only to attack each other in the very next breath.
On Monday, the US House of Representatives failed to pass the much-touted $700 billion Wall Street bailout.
Or, to be more precise, in the empty halls of the Capitol. After the US Representatives drop-kicked the bailout bill, triggering another Black Monday -- and leading to a 777.68 point drop in the Dow Jones industrial average -- Congressmen and women headed home to their constituencies. The occasion is Rosh Hashana, a congressional holiday.
It is difficult to believe, but on the day after the disaster, the doors of political process in Washington are closed and will only be opened for business again on Thursday. And even as Rosh Hashana traditionally marks a period of limited trading on Wall Street, it isn't just those in the financial world who will be looking in vain to Washington for some sort of political leadership amid the market storm.
Instead, the markets are on their own. And just what the next act in the ongoing drama might look like became clear when the markets in Asia and Europe opened their doors on Tuesday. Japan's Nikkei 225, Asia's largest market, plunged 5 percent in the first hour of trading with benchmark indexes in South Korea, Australia and New Zealand likewise dropping by more that 4 percent. In Europe, Germany's DAX dropped 2 percent in the opening minutes of trading to hit a two year low before partially bouncing back. Many other markets in Europe likewise fell, with the London FTSE dropping by 3 percent.
On the whole, however, markets in both Asia and Europe seemed less volatile on Tuesday than the dramatic fall of US markets on Monday. In just six and a half hours on Monday, US markets lost $1.2 trillion in value -- some $3 billion every minute.
Monday was also a political disaster in the US, especially for US President George W. Bush and his Secretary of the Treasury Henry Paulson. Both had thrown their weight behind the bailout plan and urged those in their own party to support it.
In the end, though, their failure to do so will go down in history. Fully 133 Republican Representatives and 95 of their Democratic counterparts cast their votes against the controversial bailout plan. It was a bill that Wall Street yearned for, but it was unpopular among US voters -- and with all 435 Representatives up for re-election in November, many sacrificed the nation's financial health on the altar of short-term political considerations.
"The legislation has failed," a pale Speaker of the House Nancy Pelosi announced. "The crisis has not gone away." Pelosi, whose own reputation has also taken a major hit as a result of a bitterly partisan statement she gave shortly before the vote, then disappeared from the spotlight.
What happens next remains unclear. Paulson pledged on Monday night to renew negotiations. "I will continue to work with congressional leaders to find a way forward," he said. "We need to get something done."
Prior to Monday's vote, a number of Democrats had joined both Bush and Paulson -- in a seldom seen display of bipartisanship -- in arguing that, without a bailout plan, the entire US economy would be in danger. Not only would the finance sector become increasingly instable and investment portfolios lose value, they said, but the economy as a whole could face a slowdown. Now, that thesis will be put to the test.
Already, experts have advised all those with more than $100,000 deposited in a US bank account to redistribute their money. In the event of a bank failure, the FDIC only insures deposits up to $100,000.
But before America begins looking ahead to what this week seems to be a bleak economic future, many are looking back and asking the question, after all the late-night negotiations and promises of bipartisanship, how on Earth could the bailout package have failed?
Members of Congress only first received the bill, with its pompous title "Emergency Economic Stabilization Act of 2008" on Sunday afternoon. And it was a version that, after numerous additions, had swelled from the original three pages to an outsized 110 pages.
Immediately, leaders from both parties began trying to line up the votes necessary for passage. The next morning, Barney Frank, the House Financial Services Committee Chairman, said that both Republicans and Democrats had come up with enough votes to pass the bill.
That, though, proved to be inaccurate. A number of conservative members of Congress were ideologically unable to support the bitter political pill represented by the bailout plan. They found it impossible to support a law which would redistribute hundreds of billions of dollars from the tax payers of "Main Street" to the speculators on "Wall Street." Indeed, the conflict proved a populist one -- and one that politicians simply could not foist onto their constituents, particularly with so little time before the November elections.
Many Representatives saw the Monday vote as one which could cast a shadow over their entire careers -- not unlike the 2003 vote to invade Iraq. Just before casting his vote in favor of the law, Republican Spencer Bachus said "this will be the most difficult decision I make in my 16 years in this body."
In the end, the bill fell short by 12 votes -- one dozen Republicans who the party leadership had thought would approve the measure. And immediately after the vote, both sides of the aisle began pointing fingers. The Republicans blasted Pelosi for holding an intensely partisan speech just prior to the vote -- a speech which some Republicans said led many to shy away from a yes vote. Barney Frank, however, rejected the notion, saying "because somebody hurt their feelings, they decided to punish the country? I wouldn't have imputed that degree of pettiness and hypersensitivity."
But it's not just those in the House of Representatives who are now facing political consequences. Both Republican presidential candidate John McCain and his Democratic counterpart Barack Obama were merely lukewarm in their support of the bailout package, though both ended up casting Senate votes in favor of the deal.
McCain, however, may end up with the short end of the political straw. Last week, he interrupted his campaign and threatened to skip last week's debate with Obama in order to personally move the debate in Washington forward. Instead, the first tentative compromise fell apart not long after he arrived in Washington and his participation thereafter was primarily from afar over the phone.
It is a crisis which could end up being a millstone around McCain's neck. Indeed, just before the failure of the package, McCain boasted about his role in the negotiations at an election appearance. Not much later, when asked by a reporter about the package's failure, McCain disappeared without a word. Finally, more than an hour after the markets closed, McCain appeared before the television cameras and said, "now is not the time to fix the blame. It's time to fix the problem."
"Now," of course, means after the holiday. But there will at least be one politician in Washington who will be addressing the issue at hand. President Bush plans to give a speech in the Rose Garden at the White House. He will once again warn against panic. As he did on Monday. Before the crash.