As you know by now, the $700 Billion package was defeated in the House yesterday, leaving egg on the faces of House Congressional leaders and President Bush. House Speaker Pelosi blamed the Republicans for the failure, but looking at the number of Democrats that voted against it, I would say that she would need to flame her own Party as well. But as I mused in the previous post, is this funding in the best interest of the common American citizen?
I received an email from my Representative Mike Rogers which stated (in part):
After a week of negotiations, I voted against this bill because it was still the same bailout bill, written by a Wall Street guy with a Wall Street solution to a problem created on Wall Street. This bill was still a blank check to Henry Paulson. It still provided no serious help for homeowners struggling to pay their mortgages. This bill still provided up to $700 billion dollars to financial executives while doing little to nothing to help American workers.
And in most respects, I agree with Representative Rogers, although Congress had their hand in creating the situation in the first place. I then read an article on msnbc.com that summed up the legislation very nicely:
The legislation would have allowed the government to buy bad mortgages and other rotten assets held by troubled banks and financial institutions. Getting those debts off their books would bolster those companies’ balance sheets, making them more inclined to lend and easing one of the biggest chokepoints in the credit crisis. If the plan worked, the thinking went, it would help lift a major weight off the sputtering national economy.
So here’s an excellent reason that this bill should not have seen the light of day – it’s a bailout package for companies that took risks, lost the gamble, and are looking for a handout. Now true that the "bailout" is actually a loan at something like 11%, but who says that the taxpayer should "buy bad mortgages and other rotten assets" for their tax dollars, and that 11% is going to cover it? At least when Chrysler got their loan back in the 80’s, they put up the company’s assets. What do the financial institutions have as collateral? Office space, desks, & computers? Not nearly enough to cover a loan of this magnitude.
And some of the House Republicans felt the same way. From the same msnbc.com article:
But Republicans who voted against the bill objected, saying the measure did not do enough to protect individual investors and bank account holders.
“New York city fat-cats expect Joe Sixpack to suck it up and foot the bill for their excesses. I think not,” said Rep. Ted Poe, R-Texas.
Rep. Jack Kingston, R-Ga., said he had three insurmountable problems with the bill: It was too expensive, it rewarded Wall Street firms by guaranteeing private profits with public funds and it did not address an antiquated regulatory system.
“This throws a life jacket to Wall Street, but it doesn’t teach them to swim and prevent this from happening again,” Kingston said.
Rep. Cathy McMorris Rodgers, R-Wash., called her decision to vote no “one of the most difficult I have faced.”
“I agree this bill is much better than the one we started with,” McMorris Rodgers said. But “committing 700 billion of our tax dollars requires a longer, more thoughtful debate.”
Now of course it didn’t help that Speaker Pelosi delivered a partisan speech while trying to garner bi-partisan support for the bill, but it does make you wonder what else was going on. From a couple of different sources, some of the Liberal Democrats tried to slip in verbiage that would have given the Association of Community Organizations for Reform Now (ACORN) preferential treatment until various Republicans objected (Note: ACORN is one of the community action groups that was enabled by the Community Reinvestment Act (CRA) that received funding for helping low income families, primarily African-American, to take out housing loans, which is one of the reasons for this crisis.) I have also read that several of the House members, both Democrat and Republican, are in close races for re-election, and they didn’t want to vote for this bill because of the backlash they were receiving from their constituents.
So what caused the bill to fail? Politics, as usual, and maybe a dose of common sense . . . maybe . . . But let’s consider something else for a moment.
I keep reading that if the financial section is not propped up with taxpayer money, things will get worse for the taxpayer. But I don’t see the details of how!!
I see the markets reacting in a tremendously negative direction. But you have to remember – the stock market, like the financial market, is based on speculation!! There will be winners and losers! You can’t save every company and everyone from themselves – this is part and parcel of a free market, and of taking risks to make a profit.
It’s also the same with people. People do not always make good decisions. For instance – They buy a house which would normally be beyond their means with an adjustable rate mortgage with the initial rate being super low for the first 3 years, and then it rises where they can no longer afford the payments. Did they not realize that it could cost more in the long run? Should they run around and scream that they are being ripped off because they made a bad decision and need help? I hate to be a callous old bastard, but no, they do not have an excuse. Presumably, they knew what they signed. There will be failures.
In many respects, I would want the struggling companies to fail, and let the stronger ones pick up the pieces. Government should examine the situation, and pass regulations & policies to close the loopholes and strengthen the market. Government should not be manipulating the market as much as it is, and the bailout plan just burdens the taxpayer all the more.
If some form of this bailout not pass, will there be pain? Yes. Will some Americans be affected? Yes. In what ways? I haven’t read that anywhere – you tell me, but I can guess.
I can see where companies that need to borrow money to expand or fund their operations would not be able to get those loans at the higher interest rates. This, in turn, could cost jobs. But I know for a fact that companies with good credit ratings, excellent track records, and sound business plans can get lower than normal interest loans.
I can see where organizations such as ACORN will scream bloody murder that the higher interest rates would discriminate against lower income people, and that more tax dollars are needed to get "their" people into their own houses. I hate to break it to them, but I think it’s time for a reality check – if a person cannot make the payments on his own, they probably shouldn’t be in a home because a house costs more than the mortgage payment when the cost of upkeep is added to it. There are some decent apartments for what a house payment would cost – no one would be without housing. But then again, these organizations want to "book" fees at taxpayer expense to keep themselves afloat…
So folks, tell me where you think that we would be affected if Congress, by some miracle, decides not to pass a bailout bill.