The House of Representatives is taking a second try today at passing a bailout of the United States financial system after its narrow defeat Monday sent the Dow Jones Industrial Average sliding over 700 points this week.
Republicans and some conservative Democrats voted down the bailout, that most Americans saw as a free ride for CEOs and Wall Street institutions who created the crisis in the first place, because they felt that taxpayers should not have to pay for a fix to the problem. The slide in the stock markets brought the issue home to constituents as the value of their investment and retirement portfolios felt the effects of the credit crunch.
President George W. Bush and legislative leaders have been attempting to drum up support for a version of the bill passed by the Senate which added some tax extensions that will increase its cost to over $800 billion. The President said this morning that the House “must listen” to the warnings and vote yes to the bailout.
Supporters of the bailout say that without it, credit markets will freeze leading to more layoffs and an end to most lending. They say that mortgage lending, car loans and financing for small businesses to maintain inventory or expand has all but dried up in the past two weeks. Banks have been reluctant to loan money to one another in a market where no one can tell how much of an institution’s debt is tied up in shaky markets.
Detractors say that taxpayers are being put on the hook to absorb the losses of financiers who made poor decisions. They also say the bailout provides no relief to homeowners who are stuck in the loans that have dragged the economy into the mess it is in.
The evidence is there that no action can cause some weakening in the already troubled economy. Economic numbers released this week show that companies are shedding jobs. The Labor Department said that employers cut 159,000 jobs in September, but the nation’s unemployment rate remained steady at 6.1 percent.
As unpalatable as the bailout may seem, economists say that it may not go far enough to keep the financial sectors out of trouble in the future. Some suggest that more power be given to regulators who oversee the banking industry.
Banks and consumers have begun to feel the credit crunch. Lenders have no funds to finance the purchase of automobiles, homes and other items. State and local governments are being locked out of the credit markets.
California Governor Arnold Schwarzenegger has sent a letter to Treasury Secretary Henry Paulson asking for a $7 billion loan to insure that his state can meet its day-to-day expenses. According to the document, the State of California will run out of cas to meet its expenses at the end of October.
No matter the outcome. The financial system is in a crisis that must be addressed.