700 Billion Bailout Plan Fails

[jdobbin]

All markets are down... What's next?

Defeat for McCain?

[bush_cheney2004]

Defeat for McCain?

This reminds me of the time we had a raging fire in a kitchen broiler, but my wife's main concern was trying to silence the smoke alarm!

McCain...Obama....that silly game doesn't really matter at the moment.

[August1991]

The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

Bloomberg

IOW, the Fed has decided not to wait for the politicians to act. At this stage, it is a banking crisis and it is up to the Fed to shore up confidence. Similarly, I blame Bernanke for a lack of tactics in this crisis. Bernanke may be smart but he's not sufficiently nomish to be a central banker.

[Radsickle]

Interesting point - most Republicans voted against the motion and most Democrats for it.

Huh? Then why did I hear more than 1 Republican tonight blaming partisan politics and that a woman named Nancy would only allow a certain number of pro-motion votes before her party, The Democrats, made sure the motion would fail.

There needs to be more accountability for the CEO's, more industry regulations, and more help for main street vrs. wall street.

[August1991]

Get ready for chaos. I think the bankers that created the mess need to step forward and make some sacrifices by returning part or all of their ill gotten bonuses and golden parachutes. If enough did that then the public would probably be less hostile. Of course they are all probably telling themselves that its not their fault....

Quibbling about a $50 million golden parachute in a $700 billion bail out package amounts to arguing over a 5 cent tip in a $1000 restaurant bill.

While I agree that most businesses should be left to go belly up if management makes bad decisions, the banking sector is a little different. Banks, more than most other industries, operate on trust and this trust permeates all other parts of the economy. Thi is why we have State deposit insurance and State guaranteed mortgages. It is these State guarantees that provoked this crisis.

It is wrong to see this as a crisis of capitalism since it is rather a crisis of the role of the State within capitalism.

----

Anyway, at this stage, it is important to restore confidence.

[Radsickle]

None of it good? ridiculous. This will relieve the expected inflationary pressured that would have resulted from this package leading to a real chance at stagflation. Also, not doing this package will certainly make the pains sharper, but shorter lived.

I hope it stays dead.

R.I.P Republican Party

[bush_cheney2004]

Huh? Then why did I hear more than 1 Republican tonight blaming partisan politics and that a woman named Nancy would only allow a certain number of pro-motion votes before her party, The Democrats, made sure the motion would fail.

The Democrats control the House, but fully 95 of them did not vote 'YES' because their email and phone calls from back home said to make the fat cats sweat. Pelosi and the majority leader could not herd their own cats, let alone the Republicans.

There needs to be more accountability for the CEO's, more industry regulations, and more help for main street vrs. wall street.

That's all well and good, but there will be no deal until the politics are played out and played down, starting with the House Speaker.

[bush_cheney2004]

R.I.P Republican Party

GOP will be fine....it's the LPC that will soon be extinct.

[jdobbin]

R.I.P Republican Party

Certainly economics is not a winning issue for McCain. The polls are showing he is losing older voters and voters concerned about the economy.

It hasn't been a good two weeks for McCain and the Palin factor won't make him any less befuddled.

Edited September 30, 2008 by jdobbin

[August1991]

Here's a good read that presents well the problem facing the US economy:

Fears of mortgage-based losses and bankruptcies throughout the financial sector are clearly slowing the flow of credit through the American economy. Financial institutions are reluctant to lend to each other or to nonfinancial borrowers. There is a great deal of mortgage-related "sand in the gears" of America's financial machinery.

The WaMu takeover shows that at least one part of the system can clean out the sand. But, alas, it also indicates that there is much more sand that will be harder to remove.

Forbes

----

Since Congress refused to give the Fed a $700 billion line of credit, the Fed has now gone to foreign central banks to get about half that amount and thrown in about $350 billion of its own money to have about the same as Congress would have, in effect, given it.

In some ways, the Fed solution may be better. It ensures that the banking system stays liquid (a quart of oil added to the motor will ease the sand friction) and it removes the stigma of a taxpayer bail out.

I think the Fed decided that it simply couldn't wait. They need a headline tonight.

[kengs333]

GOP will be fine....it's the LPC that will soon be extinct.

Palin is the biggest political joke and is a perfect example of why McCain is now to senile to be president.

Of course, given the recent history of voting irregularities in the US, I'm sure the Reps will manage to pull this one out of the bag, too.

[kengs333]

It's real great to see that solving the crisis will be put on hold because of a holiday tomorrow.

[Radsickle]

GOP will be fine....it's the LPC that will soon be extinct.

R.I.P. G.O.P.

It's real great to see that solving the crisis will be put on hold because of a holiday tomorrow.

We'll have to consult Alanis Morissette on the irony of that.

Edited September 30, 2008 by Radsickle

[sharkman]

Here's a good read that presents well the problem facing the US economy:Forbes

----

Since Congress refused to give the Fed a $700 billion line of credit, the Fed has now gone to foreign central banks to get about half that amount and thrown in about $350 billion of its own money to have about the same as Congress would have, in effect, given it.

In some ways, the Fed solution may be better. It ensures that the banking system stays liquid (a quart of oil added to the motor will ease the sand friction) and it removes the stigma of a taxpayer bail out.

I think the Fed decided that it simply couldn't wait. They need a headline tonight.

Then I guess this means there will be no second try at a bailout since Bush had a back up plan? I wonder how the markets will take this.

Congress could not get past politics to do the right thing, and the market loses how many billions in one day as a direct result. Shame on them.

[GostHacked]

Then I guess this means there will be no second try at a bailout since Bush had a back up plan? I wonder how the markets will take this.

Congress could not get past politics to do the right thing, and the market loses how many billions in one day as a direct result. Shame on them.

Correct that to trillions. 700 billion is really not much. And since the bailout did not happen, the markets are in a downturn in the US, Canada, UK and parts of Asia. Since much of Canada and the USs economies are interconnected, the effects of this downturn in the US does a number on Canada as well. Overall, the DOW is down almost 7%, While the TSX kicked down just over 11%. The ratio of the population to GDP shows that Canada is going to be hurting much more.

What kind of holiday is it that they break for?

[gc1765]

Now the Republicans are trying to blame Pelosi for this not passing....Unbelievable!!

[August1991]

Overall, the DOW is down almost 7%, While the TSX kicked down just over 11%. The ratio of the population to GDP shows that Canada is going to be hurting much more.

The TSX was down about 7% today and that puts its back to where it was about 2 years ago in the fall of 2006. IOW, all of teh gains of the past two years have been lost. 2008 has been an exceptionally volatile year!

GH, I don't what you mean by "ratio of the population to GDP". The TSX is down because of panic selling and this puts severe stress on the liquidity of financial institutions. Some people are terrified that they are going to lose their savings so they are retreating to cash or other "safe" instruments. At the same time, this reflects falling valuations of future earnings.

In financial markets, perception is reality.

----

The Fed's phenomenal increase in liquidity does not solve the underlying problem of low valued paper on many bank's books but it does overcome the short term dangers.

The remarkable feature of this latest added liquidity is the large participation of foreign central banks through swaps. It will be interesting to see how Asian and European markets respond to this latest move of the Fed. Central banks from around the world (including Canada) are involved.

I'm also intrigued by this quote at the end of the Bloomberg link above:

The bank-rescue plan being debated by Congress today would give the Fed more power over short-term interest rates by providing authority as of Oct. 1 to pay interest on reserves held at the central bank by financial institutions. That would make it easier for the Fed to pump funds into the banking system.

Paying interest on reserves puts a ``floor'' under the traded overnight rate, which would allow a central bank ``to provide liquidity during times of stress'' without affecting the rate, New York Fed economists said in a paper last month.

This implies that the Fed is worried about the system falling into a "liquidity trap". This occurs when lowering nominal interest rates or adding extra liquidity has no effect because banks simply sit on the cash, fearful of taking any position.

``What we know is that the flow of credit has been dropping dramatically,'' said former Fed Governor Lyle Gramley, now senior financial adviser at Stanford Group Co. in Washington. ``The Fed could lower the funds rate to zero. But if the credit markets are frozen up because people are in a state of panic, that's probably not going to do any good.''

Link Edited September 30, 2008 by August1991

[bush_cheney2004]

We'll have to consult Alanis Morissette on the irony of that.

Please do...she is now an American citizen.

[bush_cheney2004]

Now the Republicans are trying to blame Pelosi for this not passing....Unbelievable!!

What part of House majority do you not understand?

[bush_cheney2004]

Since much of Canada and the USs economies are interconnected, the effects of this downturn in the US does a number on Canada as well. Overall, the DOW is down almost 7%, While the TSX kicked down just over 11%. The ratio of the population to GDP shows that Canada is going to be hurting much more.

Too bad...be careful what you wish for!

What kind of holiday is it that they break for?

That would be Rosh Hashanah......could be a lot longer if it were month long Ramadan.

[WIP]

Now the Republicans are trying to blame Pelosi for this not passing....Unbelievable!!

Let them say whatever the hell they want; it was a scheme hatched by a Republican administration, and the only reason the majority of Republicans bucked the President this time is because they are all trying to turn into "mavericks" and escape blame for an economic mess created by Republican overspending that doubled the U.S. national debt under George Bush's watch. The only way the U.S. can turn the corner on this crisis is to dump every Republican who supported these schemes of deregulation and financing wars through deficit spending!

Speaking of "mavericks," I'm glad that John McCain's thinly disguised attempt to try to jump in front of the parade and pretend to be the leader, blew up right in his face!

McCain takes credit for bill before it loses

Sen. John McCain (R-Ariz.) and his top aides took credit for building a winning bailout coalition – hours before the vote failed and stocks tanked.

Shortly before the vote, McCain had bragged about his involvement and mocked Sen. Barack Obama for staying on the sidelines.

[BubberMiley]

Now the Republicans are trying to blame Pelosi for this not passing....Unbelievable!!

I could understand voting against the bill if they didn't think it was best for the country, but to vote against it because their feelings are hurt because Pelosi blamed it on deregulation is hilarious. Always looking for the partisan scapegoat, even if their reasoning makes no sense whatsoever. I guess the toadies will eat anything up though.

[GostHacked]

Too bad...be careful what you wish for!

You are asuming I am wishing for something.

That would be Rosh Hashanah......could be a lot longer if it were month long Ramadan.

So they break for a Jewish holiday eventhough there is a crisis at hand? Nice to see they are taking this crisis seriously.

[gc1765]

I could understand voting against the bill if they didn't think it was best for the country, but to vote against it because their feelings are hurt because Pelosi blamed it on deregulation is hilarious. Always looking for the partisan scapegoat, even if their reasoning makes no sense whatsoever. I guess the toadies will eat anything up though.

Bang on.

I think it's hilarious to blame Pelosi for partisanship...but what do you call voting against a bill purely because of what the other party said about it??

[bush_cheney2004]

Bang on.

I think it's hilarious to blame Pelosi for partisanship...but what do you call voting against a bill purely because of what the other party said about it??

The "other party" (majority) also had 95 votes against a bad bill, one that Americans do not like in its present form. The house members have been getting pounded on the phones and with email....VOTE NO!

There was no "FAILURE" here...it was a great display of democracy in real time.

Why the hell should the US Congress give total control to Treasury (assuming you know what that means)?

Edited September 30, 2008 by bush_cheney2004