BY MATT HUTCHINS
Despite the collapse over the past week of two more of America’s largest banking institutions, Washington Mutual and Wachovia, House lawmakers on Monday voted down the Bush bail-out package which would have vested authority in the Treasury to intervene in the market by purchasing up to $700 Billion in distressed mortgage securities. The measure failed by a vote of 228 to 205, with 133 Republicans and 95 Democrats voting against the bill and only 65 Republicans and 140 Democrats voting in favor of it. The defeat was a stunning blow to the White House and the presidential candidates, who had come together in support of the package, and markets reeled in response to the political reversal, with the Dow Jones Industrial Average falling a record 777.68 points, or 6.98%, and the Nasdaq and S&P 500 dropping 9.14% and 8.77% respectively.
On Tuesday the markets rebounded on speculation that the bailout bill would see another vote by the end of the week. The Dow gained 485.21 points, the third largest point gain in its history. By Wednesday morning, the Senate had initiated calls for a vote on the package, now modified to include increases in the FDIC’s insurance of deposits to $250,000 per account. President Bush and Senators McCain and Obama were said to be lobbying support for the measure, exerting their full efforts to ensure that the package would clear both the Senate and the House as soon as possible to provide relief for the troubled financial markets.
In the wake of Monday’s negative vote, the brutal implications of the current financial crisis for the upcoming election have been drawn into focus and the deep rift in the Republican party fully exposed. After two terms of vast expansions in executive authority and federal spending, the Republicans sought to campaign on a platform of fiscal discipline, but the $700 billion package has proven to be too big a pill for the American public to swallow. Constituents flooded the mailboxes of representatives, decrying any plan to rescue Wall Street with taxpayer dollars. Embattled House Republicans broke ranks and advanced an alternative plan to insure the troubled “toxic” mortgage securities rather than purchasing them, but this alternative was dismissed by the White House. When the Bush plan came to the floor of the House on Monday, many members of Congress felt that a vote for the bailout would be political suicide.
McCain and Bush have now both suffered a major embarrassment by failing to maintain the support of their party in the key vote. Democrats likewise were saddled with the knowledge that they voted to give the President more authority than his own party was comfortable accepting.
Late last night, Obama gave a lengthy address on the Senate florr in which he implored the parties to pass a revised bill. “There will be time to punish those who set this fire, but now is not the time to argue about how it got set, or did the neighbor sleep in his bed, or leave the stove on. Right now we want to put out that fire, and now’s the time for us to come together and do that.”?Echoing the tone of Franklin Delano Roosevelt’s famed fireside chats, Obama concluded his address, “Let us unite in banishing fear. Together we cannot fail. We cannot fail, not now, not tomorrow, not next year. This is a nation that’s faced down war and depression, great challenges and great threats.”
Now the Senate has sent the package back to the House with a few extra incentives built in, such as an increase in the FDIC’s deposit insurance limits, relief from the Alternative Minimum Tax, and renewable energy tax incentives. A new vote in the House will be scheduled, and the nation will wait to see whether twelve representatives can be swayed to change their votes or if opposition will remain firm. Party leaders will be exerting all the strength they can muster to ensure that the Treasury is granted the authority to act quickly and avoid further deepening of the current financial crisis. The volatility of the markets, with a record loss for the Dow on Monday followed on Tuesday by the index’s third largest gain ever, shows that the rhetoric of an impending financial meltdown may be a frighteningly accurate prognostication. What remains to be seen is whether the proposed intervention, if it is approved, can halt the momentum of a wide-scale credit freeze and the financial catastrophe it could cause.