House Defeats $700B Financial Markets Bailout

UPDATE ON BAILOUT

The House on Monday defeated a $700 billion emergency rescue for the nation's financial system, ignoring urgent warnings from President Bush and congressional leaders of both parties that the economy could nosedive into recession without it.

Stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor.

Ample no votes came from both the Democratic and Republican sides of the aisle. More than two-thirds of Republicans and 40 percent of Democrats opposed the bill.
link to the full story

Bailout Winners And Losers

Well it looks like our Representatives in Washington D.C. are refusing to represent us, as the "Bailout For Wall Street Babies" is being voted on today in the House of Un-Representatives, which high expectations of passing. The Senate will make it a "done" deal on Tuesday or Wednesday, and "To Hell With The American People" Bush will sign it right after, and will guarantee himself a huge "golden" parachute once he leaves office, and can start collecting "speaking" fees from all the "monied" people he saved.

Whether you or for or against this bailout, you should let your Congressmen and Senators know, so that they can understand that this may be their last term in office if they go against our wishes. According to the polls a vast majority of the American people oppose this bailout, and elected officials should fear losing their jobs as they take this vote.

The story at Yahoo News by Tom Raum, an Associated Press writer breaks down the "winners" and "losers" in this bailout:
The proposal to bail out U.S. financial markets to the tune of up to $700 billion creates a lot of potential short-term winners, as well as some losers. Wall Street and the banking industry are perhaps the biggest winners. Scores of banks and other financial institutions faced with going under stand to gain a lifeline that should allow them to start making loans again. Under the plan that congressional aide sought to put into final form Sunday, the Treasury Department can start buying up troubled mortgage-related securities now held by these institutions.

These securities are clogging balance sheets, leaving banks without the required capital to make new loans and putting the banks dangerously close to insolvency. Banks not only have slowed lending to individuals and businesses, they have stopped making loans to each other. The rescue plan should help restore confidence to financial markets. There are other winners, too, if the bailout works as intended: anyone soon trying to borrow money -- for cars, student loans, even to open new credit card accounts.

Top executives at troubled financial institutions, on the other hand, are in the losing column because the proposal would limit their compensation and rules out "golden parachutes." Of course, these executives may take solace in knowing their jobs still exist. Investors, including the millions of people who hold stock in their 401(k) and pension plans, should benefit. Failure to reach a deal over the weekend could have sent stock markets around the world tumbling on Monday.
link to the full story

McCain And Obama's Campaign Promises Imperiled By Wall Street Rescue

After hearing about the AIG rescue on the overnight news, I saw this next story at Yahoo News written by Matthew Benjamin, which indicates that for all of campaign promises being made, that the reality of what can be done, may be quite different. The "fundamentals of our economy might be sound"???, but you better tuck a little cash under the mattress just in case!!

Here is the story:
The casualties of continuing tumult on Wall Street will include campaign promises of the next U.S. president, whether it's John McCain or Barack Obama.

The federal government has committed hundreds of billions of dollars this year to stimulate the economy, rescue failing Bear Stearns Cos. and American International Group Inc., and take over Fannie Mae and Freddie Mac. It may extend hundreds of billions more to buy distressed mortgage debt, prop up Detroit automakers and stave off recession.

Those expenses, on top of a 2009 budget deficit projected to approach $500 billion, will make it hard for Obama to find money for universal health care, clean energy and early education, or for McCain to enact $3.3 trillion in promised tax cuts over eight years.

``It's going to be a very hostile environment for major new initiatives,'' said Robert Bixby, executive director of the Concord Coalition, a non-partisan budget watchdog group. Paying for financial-industry rescue measures will be the next president's top task, he says, ``rather than some exciting new agenda, like health care for all or taxes for none.''

Last night, the Federal Reserve said the government would lend as much as $85 billion to AIG in exchange for a 79.9 percent stake in the biggest U.S. insurer by assets.
Government Rescues
Over a 24-hour period last weekend, two of Wall Street's largest investment banks disappeared, dragged down by bad bets on sketchy mortgages. Lehman Brothers Holdings Inc. filed the biggest bankruptcy in U.S. history and Merrill Lynch & Co., to avoid the same fate, agreed to a hurried acquisition by Bank of America Corp.

Earlier this year, the Fed put up $29 billion to facilitate JPMorgan Chase & Co.'s takeover of Bear Stearns, and the Treasury Department took control of Fannie Mae and Freddie Mac, which could cost taxpayers $100 billion each. Lawmakers are considering a $25 billion loan to U.S. automakers, and U.S. House Democrats want a second economic stimulus package of $50 billion for roads, bridges and infrastructure projects. House Financial Services Committee Chairman Barney Frank said Sept. 15 that turmoil in financial markets will likely force Congress and the administration to consider creating an agency to buy distressed assets from financial institutions.

Getting Expensive
``This is starting to get expensive,'' said Andrew Laperriere, managing director in Washington for International Strategy & Investment Group. Deficits in 2009 and 2010 may be ``a lot higher than people anticipate,'' he said.
New York University economist Nouriel Roubini last month predicted that hundreds of U.S. banks will fail, culminating in almost $2 trillion in credit losses.
Besides budget constraints, the crisis will keep the next president from focusing on other issues early in his tenure, when political capital is abundant and the next elections are distant, said Howard Gleckman, a senior researcher at the Tax Policy Center in Washington.

``The first 100 days is an opportunity for a president to set priorities,'' Gleckman said. ``If it turns out he's going spend them digging out from under a financial crisis that he's left with, all the other things he wanted to do get left by the wayside.''
Obama has proposed $80 billion a year in middle-class tax cuts, $18 billion a year on education programs, $15 billion annually for clean-energy investments, and $100 billion for universal health care.

Trillions of Debt
The combination of spending and tax cuts would add $3.4 trillion to the national debt by 2018, according to the Tax Policy Center. Obama's campaign says the costs will be offset by spending cuts and new revenue, and won't be shelved because of Wall Street's woes.

``The economic problems we are facing today make his entire fiscally responsible, pro-growth agenda even more critical,'' said Jason Furman, Obama's top economic adviser.
McCain's proposals would add even more new debt, $5 trillion over 10 years, the Tax Policy Center says. McCain plans to extend tax cuts passed in 2001 and 2003, cut corporate tax rates, phase out the alternative minimum tax, and double the exemption for dependents.
``The first job of the next president is to create jobs, protect people's savings, and not bail out CEOs,'' said McCain senior adviser Mark Salter. ``You don't do that by raising taxes. You do that by cutting taxes.''

Social Security
McCain also says he wants to partially privatize Social Security, long a goal of the Republican Party. Record-setting deficits will make it hard to absorb initial costs of privatization and, after the downfall of Bear Stearns, Lehman and Merrill Lynch, voters will be reluctant to take retirement money out of Social Security and entrust it to private investment accounts.
Wall Street's problems are also likely to slow the economy and shrink tax receipts, potentially adding to deficits that tighten credit for companies and consumers, economists say.
``Revenues certainly drop considerably if the economy falls into recession,'' said Jim Horney, an analyst at the Center on Budget and Policy Priorities in Washington. Government spending on programs like Medicaid increases when the economy slows.
Some budget analysts say the presidential candidates' promises are already budget-busters with doubtful prospects regardless of the cost of rescuing Wall Street.
``Both of these guys have campaign promises that cost so much more than they've got that a few more billion isn't really going to make any real difference,'' Gleckman said.
To contact the reporter on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net .
This should frighten all of us. I shall be back with a Hump Day Humor post to lighten things up a little as "the sky is falling"!! ;)

Wall Street's Big Day!

I guess this story would indicate that the rate cut was enough to send shivers of pleasure through the Wall Streeters and the monied among us~~though it is a pity to not be numbered among them:)

Wall Street stormed higher Tuesday as investors, optimistic following stronger-than-expected earnings from two big investment banks, were also galvanized by the Federal Reserve's decision to cut interest rates by three-quarters of a percentage point. The Dow Jones industrial average soared 420 points, its biggest one-day point gain in more than five years.

Many investors were expecting the Fed to cut rates a full point, but appeared to overcome their early disappointment, especially since a 0.75 point cut is still substantial. The central bank's benchmark fed funds rate is now at 2.25 percent — its lowest level since December 2004, and less than half what it was last summer. The Fed began lowering rates exactly six months ago, after the credit markets seized up due to soaring defaults in subprime mortgages.

In its statement accompanying the rate decision, the Fed said "recent information indicates that the outlook for economic activity has weakened further," but also that "uncertainty about the inflation outlook has increased." "The Fed once again in the statement showed that it is ready for further action if this were needed," said Christian Menegatti, lead analyst for online economic research firm RGE Monitor. "It also showed the fact that it's still paying attention to inflation ... but that it is far from being the primary concern right now. And the market knows that, and it is happy."

Quarterly results from Lehman Brothers Inc. and Goldman Sachs Group Inc. early Tuesday gave great comfort to a market fearful about investment banks weakening further — and hurting the rest of the economy — after losing bets on mortgage-backed securities. After Sunday's news that the stricken Bear Stearns Cos. was being bought by JPMorgan Chase & Co. at a bargain price of $2 a share, both Lehman and Goldman posted quarterly profits early Tuesday that were significantly lower than they were a year ago, but higher than analysts predicted.

"The overwhelming news this morning was the Lehman and Goldman Sachs earnings," said Jim Herrick, director of equity trading at Baird & Co. "The earnings this morning allayed investors' fears that there's going to be a hard collapse." Still, while Wall Street's advance was heartening, investors were well aware that over the past six months, stocks have had many bursts higher, only to give them back at the first sign of credit market or economic trouble. It will take some time before anyone knows whether the market is back on a true upward track, or is just staging another bear market rally.

After the Fed's decision was announced, the Dow first gave back half of its 300-point gain, then shot higher, closing up 420.41, or 3.51 percent, at 12,392.66. It was the biggest point gain for the Dow since a 447-point advance on July 29, 2002.

Broader stock indicators also finished sharply higher. The Standard & Poor's 500 index rose 54.14, or 4.24 percent, at 1,330.74, and the Nasdaq composite index rose 91.25, or 4.19 percent, to 2,268.26.

So Good for Wall Street, Now let's get this house in order and bring about real change, so that we "working people" can be a little more secure and confident in our futures'!!