Economic Indicators, Stock Market & Investment Reports

10.03.2008

Congress approved $700 billion bailout of financial industry

Congress approved a historic $700 billion government bailout of the battered financial industry on Friday. The final vote was 263-171 in the House, ended two weeks of uproar in Congress and on Wall Street. The bailout bill was quickly signed President Bush.

The approval marked a sharp turn from Monday, when the initial bailout bill was rejected by congress, largely by angry conservative Republicans.

Treasury Secretary Henry Paulson originated the bailout plan when he urged Congress to immediately give him almost unchecked legislative authority to take action in preventing the spread of economic turmoil. The plan was initially a three-page request for unlimited power to use $700 billion any way the administration saw fit to stabilize markets. When the bill was approved, it had swelled to more than 450 pages as negotiators added restrictions for the administration and sweeteners for anxious members of Congress.

Lawmakers added greater supervision over the $700 billion to the approved bill, including a process where Congress could vote to block half the money to protect taxpayers and steps to crack down on "golden parachutes" for corporate executives whose companies benefit from the bailout.


Financial markets expectation

The rescue bill that Congress finally passed will limit panic in the financial markets, since it gives the government vast new authority to remove toxic securities that have damaged and clogged the credit system and already brought down some of America's biggest companies. A consistent set of bailout rules will prevent the wild swings in the stock markets in September. With the feds stepping into the bloodbath, the bleeding should stop.

While there will probably be more bank failures, the bill makes it clear that depositors don't need to worry about their money. The bill raises the amount of deposits guaranteed by the FDIC from $100,000 to $250,000.

Although the bailout is supposed to ease the "credit crunch," it will probably be a while before relief reaches consumers when banks loosen consumer loans. For one thing, the government will focus first on freeing money for banks and businesses so they are able to keep their operations humming and meet payroll expenses.

Until banks recover from credit default losses, they are going to apply more stringent lending standards. Banks may still have to digest defaults on mortgages, car loans, and credit cards as default rates rise in a year a head.


Stocks market reaction

Congressional approval of the financial rescue plan did little to lift the stock markets from their growing gloominess over the obstacles still facing the economy. Wall Street ended an intensely volatile week with the Dow Jones industrials falling 157 points and the major indexes all suffering big losses.

1 comment:

Unknown said...

PL: It is the bitterest pill that has to be swallowed by average American tax payers to cure economic turmoil caused by greedy Wall Street