House Rejects Bailout and Wall Street Recoils

The news came from Washington Monday that shocked Wall Street: The bill extended for the tax-funded financial bailout proposal was voted down in the House of Representatives with a final tally of 205 votes “yes” and 228 votes “no.”  In reaction, the Dow Jones Industrial average dropped 777 points (over 6%) by markets’ close, and the Nasdaq fell almost 200 points.

 Kill Bill           

Both presidential candidates, President Bush, and congressional leaders of both parties showed public support for this bill—a politically safe choice so close to election time.  Ultimately it was the Republican Party that made the difference, 2/3 of the party voting “no” at a 2 to 1 ratio to democrats.  The majority of Democrats did support the bill, but a significant 40% voted against it.  Congress is now in recess, but the House plans to reconvene at noon on Thursday rather than adjourning as previously intended.

Based on the numbers, Wall Street had high hopes for the passing of this bill, but the relief it could provide in the long term was ultimately speculation, and many took issue with the tax payers bailing out big executives whose bad decisions brought on their hard times.  If it had passed, this bill would have set in motion the biggest government financial intervention since the great depression.

Compromise or Copout?

According to the proposal, the EESA (Emergency Economic Stabilization Act) of 2008 would have given up to 700 billion dollars to the Secretary of the Treasury to be spent purchasing the assets and mortgages that are making it so difficult to access credit.  This money would have been provided in installments, starting with $250 billion upfront and adding funds as deemed required under executive approval only. 

But it comes up short with its meager stipulations to limit so called “golden parachutes” and CEO windfalls, as well as a vague promise that taxpayers could potentially profit from future growth of companies that benefit from the bailout.

Financial Fallout

Doomsayers assert that a protracted effort to produce another bill that can be agreed upon would be cumulatively destructive to the economy and disastrous for retailers going into the holiday season.  And at the moment, fear seems to be the defining psychological state of the global market as some European banks have had recent interventions and the yield on treasury bills has decreased as well.  The average price of a barrel of oil has dropped $10, a common sign that demand for gas will fall as predictions of consumer spending wane.

The numbers on Wall Street speak for themselves of market confidence, or lack thereof, but it seems that this may be a time not of hasty reaction, but of consequence.  The House vote may have surprised those with big bucks riding on an invincible market, but for the average American skeptic, it may have been a surprise welcomed with open arms.