9 ms·

$700bn Bailout is shot down by House of Rep Vote (205-228), US stock market plummets

130 points by kirse 18y ago

wd40 18y ago
and the dollar surges! (re: biggest dollar gains in 15 years)
- dougp 18y ago
  where do you see this I'd like it to be true.
  - wd40 18y ago
    http://business.timesonline.co.uk/tol/business/markets/article4844255.ece http://business.timesonline.co.uk/tol/business/markets/artic... "As nine central banks used currency swaps to oil the wheels of dollar liquidity in the money markets, sterling plunged and was on course for its steepest one-day drop against the dollar for at least a decade and a half."
quasimojo 18y ago
good! lawmakers on the radio today were saying 90% of their callers were against it. this is a victory for the stingy saver who doesn't obsess over vacation homes and luxury cars. every THING is about to go on sale, and the prudent will have their day. taxpayers who pay their bills and live wisely don't need credit, they live on cash. these people should not be punished for the greed of everyone else on wall st and main st
- run4yourlives 18y ago
  this is a victory for the stingy saver who doesn't obsess over vacation homes and luxury cars. Unfortunately, 90% of America isn't described in the above sentence.
  - fallentimes 18y ago
    Well, in a way, they sort of had it coming with their negative savings rates and all. Personal accountability really does go to die in the States although other countries are approaching our levels. Fat? Liposuction. Ugly? Plastic surgery. Don't want to exercise or eat right? Pills. Poor? Welfare. Don't know what you're doing with massive gobs of money? $700 Billion Bailout!?
    - krschultz 18y ago
      What are you talking about? There are plenty of people who put 20% down on a fixed rate mortgage, are paying that off perfectly, and the market value of their house is now below what they paid for it. Those people are going to get hammered if they sell the house and owe the bank tens of thousands of dollars. In that situation you just don't sell your house. But what if you have to sell your house? Medical bills? Job changes? Want to retire? It's nice that you think you are superior to all this vain people, but this crisis is not about vain people getting fucked. It is about responsible people have their American dream burned to the ground by morons with oversized sub prime mortgages and the banks that lent to them. This goes beyond hurting the people who caused the mess!
      - fallentimes 18y ago
        Houses are not an investment vehicle. If you buy one, it should be the for the long-term. Otherwise - don't. And I do feel for the minority of people with special circumstances. I do not think I'm superior; I just try to know what I'm doing before acting. The people who took out those loans knew what they were getting in to, and if they didn't, they should have. If it sounds too good to be true... I'm well aware that this affects everyone in some way. We're at a point where fixing liquidity is crucial and something needs to be done, and we need to make sure to profit from any money lent. I really like what Sweden did: http://is.gd/3iO2 http://is.gd/3iO2 I just worry our government is going to react instead of decide.
        krschultz 18y ago
- transburgh 18y ago
  What about those who are young and hacker-ish that have not had the chance to save (I mean compared to someone that has been working for 20 years)? Times might get a little tough.
  - tomjen 18y ago
    Well, we will hack through it.
  - kirse 18y ago
    Well, if you're worth nothing you have nothing to lose, that's the way I see it.
    - mechanical_fish 18y ago
      This is precisely correct. Not a joke at all. To first order, this is great for you. Stocks are going on sale. You want to do your saving immediately after the massive crash, not before. Of course, that's just the first-order analysis. The second-order problems are potentially, um, annoying: If the economy tanks you might not earn any money to save next year. And your joy at being able to invest in a bear market (because you've got plenty of time to wait for the recovery) might be dampened by the sight of your parents moving in with you to save money because their retirement fund just evaporated. (They don't have time to wait for a recovery.)
      - netcan 18y ago
        I think that the better statement is 'volatility creates opportunities.' For example, depressed real estate markets can create high demand for rentals. You might be able to make money each month on a mortgaged property (a real novelty in Australia for example). And if rental demand is high, prices will probably eventually recover. The issue is that a recession by definition means most people are worse off.
  - run4yourlives 18y ago
    You guys are much better off. Those of us with houses and bills are going to hurt. Those of us with stretched lines of credit and a penchant for living above our means are really going to hurt.
- biohacker42 18y ago
  The Fed can still print money and screw us savers.
- jeremytliles 18y ago
  Ok, here's the thing: even if you disagree philosophically with the legislation that they put together, you still would be wise to be very worried about the overall state of the economy due to tight credit. Many businesses (good, solid, profitable businesses that employ hard-working people) fund their operations via credit markets that have seized up. Absent some kind of intervention (and I for one would like to see more ideas on the table), even your ideal "prudent" person will probably suffer. Just because you've done everything prudently on your own micro scale doesn't mean macro events can't hurt you.
  - davidw 18y ago
    I can't pretend that I understand this whole thing, and am quite suspicious of anyone that says they do, who does not report on it more or less full time and have a good grasp of economics, but... one analogy that's come to mind is a car stopping. In one case, with the brakes, in another, by hitting a rock wall. The end result is still a stopped car, but there are some other differences that might be of interest to the occupants. In any case, most of the discussion that's worth anything is coming from economists, of which there are a wide variety to read. Most people on sites like this one don't seem to have the expertise to say much that's useful, either for or against (and that includes me, thanks). http://economistsview.typepad.com/ http://economistsview.typepad.com/ http://econlog.econlib.org/ http://econlog.econlib.org/ http://www.marginalrevolution.com/ http://www.marginalrevolution.com/ http://www.economist.com/blogs/freeexchange/ http://www.economist.com/blogs/freeexchange/ http://economix.blogs.nytimes.com/ http://economix.blogs.nytimes.com/ http://delong.typepad.com/ http://delong.typepad.com/ http://www.ft.com/cms/s/0/290ca9f6-8d8b-11dd-83d5-0000779fd18c.html http://www.ft.com/cms/s/0/290ca9f6-8d8b-11dd-83d5-0000779fd1... As you can see even those guys are peddling their own ideologies to various degrees, along with everyone else with vested interests - and that's a lot of people, because 700 billion combined with a potential collapse of the economy is pretty high stakes. This doesn't make it easier to understand.
    - run4yourlives 18y ago
      That's a great analogy. There's a brick wall looming up ahead, and we just cut the line to the brakes.
- natrius 18y ago
  The bailout isn't to help taxpayers get credit. It's to help businesses get credit so the prudent will still have jobs in a month. Everything may go on sale, but you can't go on a shopping spree when you're unemployed. The vast majority of the bailout criticisms I've heard are woefully uninformed.
  - kingkongrevenge 18y ago
    You can't wave a magic wand and create real reserves to lend. Real credit comes from reserves of savings. This is about stopping a deleveraging process in the financial markets, not about ensuring the flow of credit to businesses. That's just the propaganda. Credit demand is collapsing as an economic bubble bursts and this is DRIVING the deleveraging. Not the other way around. If the economy were truly starved for credit you'd see 8% rates on CDs as banks scramble to raise reserves to lend out.
    - natrius 18y ago
      "Credit demand is collapsing as an economic bubble bursts and this is DRIVING the deleveraging." You're going to have to explain that more. How does lower credit demand force deleveraging? I was under the impression that the deleveraging is being caused my huge losses on heavily levered investments. "If the economy were truly starved for credit you'd see 8% rates on CDs as banks scramble to raise reserves to lend out." The markets for debt have just taken a huge beating. I'm guessing the banks aren't meeting the demand for credit because it has just become more difficult to sell debt. If they are having issues with the loans they've already made, it's easy to see why they aren't rushing to issue more. I can't prove that the economy is starved for credit, but it's clearly the conventional wisdom. If you're going to call that propaganda, you need to prove that the conventional wisdom is wrong.
      - kingkongrevenge 18y ago
        > I can't prove that the economy is starved for credit You can get a loan at very reasonable rates right now if you meet the criteria. That's just a fact, and I'm not in a mood to give you documenting links. Outstanding credit continues to grow at only a slightly lower rate than before. There is not a credit shortage. There is a shortage of viable uses for credit. There is huge overcapacity in retail, housing, etc. People who can't reasonably be expected to pay back loans can't get them right now. Which is basically a good thing. Businesses can't get loans to expand because nobody in their right mind thinks many kinds of business SHOULD be expanding. The macro-economic conditions are driving the markets, not the other way around. The financial firms are suffering because the REAL economy ran out of greater fools and hit its maximum tolerable debt load. The real economy is not shuddering because the masters in Wall Street can't grease the wheels; it's the other way around.
- deleted 18y ago
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- echair 18y ago
  This is a victory for the stingy saver Not if he has his savings in stocks. In fact, if he followed the conventional wisdom and put (100 - age) percent of his assets in stocks, a 40 y.o. stingy saver just lost 5% of his savings today alone. Which is almost certainly more than his share of the $700 billion.
  - byrneseyeview 18y ago
    Tax rates are negative, zero, or nominal for most people. There are perhaps 100 million people who pay a substantial amount of income taxes in the US (I am fudging around various numbers to make the math easier, here; see http://www.taxfoundation.org/research/show/1410.html http://www.taxfoundation.org/research/show/1410.html for information on how many people simply don't pay taxes). So that's an average of $7000 per serious taxpayer. $7000 is 5% of $140,000. Do you think a typical 40 year-old taxpayer has a $140,000 equity portfolio?
- krschultz 18y ago
  Not exactly true, there are plenty in good financial standing who had prime mortgages on their single residence, a place they have owned for 10+ years, that because of the depreciation in the market can now no longer sell their home without owing a huge amount to the bank for the difference. That means you can't sell your home if you have to, what if your job tells you that you have to move? What if you have to sell your house to use the cash for medical bills? There are a lot of people really hurting from this, just because we're a bunch of hackers living in apartments saying HAHA now I can buy a house! Doesn't mean that families who made previously responsible decisions are not getting really hammered. To say "GOOD!" to this is incredibly callous and most likely a sign of great ignorance to what is really going on.
  - burnout1540 18y ago
    Unless you live in an unbelievably depressed area like downtown Detroit (and maybe not even then), home prices in America are substantially higher than they were 10 years ago. So anyone who has had a fixed rate mortgage for 10+ years (unless they've been treating their house as an ATM) is looking at a profit if they sell their house. In fact, according to the Case-Shiller index, homeowners in the 20 largest metro areas of the U.S. have seen their homes increase in value by over 60% between January 2000 and June 2008. Of course, this is down from 106% as of the summer of 2006. Falling house prices have definitely put a large number of homeowners underwater, but these people either bought in the past few years or took out one or more HELOCs (home equity line of credit).
TweedHeads 18y ago
Where can we see how they voted? I want to keep an eye on those 205 SOBs
- furiouslol 18y ago
  http://clerk.house.gov/evs/2008/roll674.xml http://clerk.house.gov/evs/2008/roll674.xml
- gills 18y ago
  it's here as well: http://www.govtrack.us/congress/vote.xpd?vote=h2008-674 http://www.govtrack.us/congress/vote.xpd?vote=h2008-674
- Jasber 18y ago
  Can anyone explain to me why the Republican's went against Bush on this one? I've been reading and racking my brain and it doesn't make sense to me.
lisper 18y ago
http://rondam.blogspot.com/2008/09/ive-never-been-so-happy-to-lose-money.html http://rondam.blogspot.com/2008/09/ive-never-been-so-happy-t...
railsjedi 18y ago
Wow. And it's only Monday. Things are going to get exciting this week. Dow 8-9k.. any predictions? Fortunes are made buying in bear markets. Though I wouldn't suggest its easy to recognize the bottom.
- biohacker42 18y ago
  8K would be a reasonable valuation.
  - fallentimes 18y ago
    Based on what? Historical P/E FCF valuations?
    - railsjedi 18y ago
      Heh, one of the only reasons I stick to buying index funds is because I don't have the energy to learn what those terms mean.
      - fallentimes 18y ago
        Ha! One of the reasons I stick to buying low cost index funds is because I know what those terms mean and have realized finance is mostly a fools game. Especially hedge funds. Different means - same ends.
        kirse 18y ago
        I agree with the "index fund" approach. Too many people get caught up playing the market or paying out the butt to some "financial advisor" who doesn't have much more of a clue where the economy is going than your Average Joe. Just stick it in an index fund and let compound interest be your friend.
    - biohacker42 18y ago
      Gut feeling :)
briansmith 18y ago
Stocks are only down ~6%. The Dow is regularly going up and down hundreds of points at a time these days, -571 points is not really that big of a deal. Plus, what would you expect to happen? Investors were counting on about $1 Trillon of free money from the government, and then the government pulled it back at the last minute. In a few days there will be news of a new deal and the DJIA will be up 500 points again. And, if the House of Representatives keeps doing its job, then the DJIA will fall 500 points again when the next "no" vote comes.
- run4yourlives 18y ago
  Well, I wouldn't equate a single day's loss to mean much. The DOW is going to get lower and lower, even if it has a few blips here and there. The key is this: The DOW dropped 500 points because nothing happened. Theoretically, the markets are in the exact same position they were in Friday, yet they fell. Once more Wachovias start pilling up, that's when you'll see the slide begin.
  - prospero 18y ago
    Same exact position as Friday, minus the prospect of $700 billion. That's not a trivial difference.
    - run4yourlives 18y ago
      I'm not suggesting it's trivial. I'm simply suggesting that the worst is probably yet to come.
- tlrobinson 18y ago
  And while it's the biggest single day point loss, it's not even in the top 10 percentage losses.
  - kirse 18y ago
    Not to mention the majority of it bounced back the next day.
yummyfajitas 18y ago
Did anyone notice the title of the bailout? "To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes" I think the real reason it failed is that they didn't title it "Flags for Orphans and other stuff".
- briansmith 18y ago
  I came here to post the same thing. I was sure that I had found the wrong roll call aftering seeing the title of the bill.
- gaika 18y ago
  The next bill will be titled: To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to software developers, information architects and dolphin trainers
- samwise 18y ago
  People assume that 1.2 trillion was lost(stock market). However that money still exists, just the ownership has changed. Today was probably the largest transfer of wealth ever. In my opinion this is a good thing. You can't have unchecked growth forever. You need to have a downturn to jolt consumer confidence and investor confidence.
  - slackerIII 18y ago
    So when my portfolio dropped today, who exactly got that money? I didn't sell any stocks, mind you. I just had X dollars worth of stock this morning, and now I have < X.
    - deleted 18y ago
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cellis 18y ago
So an administration that no one trusts can't pass a bill that would enact the largest transfer of wealth in history - from American people - to reckless financial institutions that don't even trust themselves? Astounding!
- arockwell 18y ago
  That pretty much sums up my view point. I really don't understand much of what is going on (who really does honestly?), but I certainly know I can't trust anyone involved in this clusterfuck.
  - timr 18y ago
    What's really interesting about this is (IMO) is that the Republicans are the ones largely responsible for the failure. The president's own party is revolting against him.
    - timr 18y ago
      It's a factually true statement, folks. Check the vote counts, and you'll see that it went down along party lines, with Republicans in the majority of the 'no' votes. In fact, over 67% of House Republicans voted against the bill. The White House lobbied heavily for the measure, and the Republicans in the House shot it down. That's interesting.
      - Prrometheus 18y ago
        Republicans in the House of Representatives have been the most Conservative caucus in any branch of government for at least the past few decades.
    - mnemonik 18y ago
      Perhaps they were gambling that enough dems would vote for it (because of the scare tactics of reading out the dows stock starting to crash right before the vote) so that it would pass, and later when the bailout became the political failure it was destined to become they could point to dems as responsible. American voters have a very short memory, and few check facts. I'm sure that the fact that this is so closely connected to Bush could be forgotten with an excellent mudslinging campaign. Then the Repubs would be able to take seats in the next congressional round of elections.
Harkins 18y ago
http://projects.washingtonpost.com/congress/110/house/2/votes/674/ http://projects.washingtonpost.com/congress/110/house/2/vote... If you're interested in how specific Representatives voted, we (I work at the Post) grabbed the data before house.gov keerashed.
- SwellJoe 18y ago
  I'm surprised by the vote tallies. Democrats voted 140 yes and 95 no, while Republicans voted 65 yes and 133 no. So, either Republicans (in the House) have more integrity than I'd given them credit for lately (and more than Democrats, on the whole), or I have less understanding of the bill than I thought I did. Also, the Washington Post is either a little bit batshit crazy, or they have a strange sense of humor: You can sort the results by astrological sign. If you really wanted to have one more sorting type...the length of time in office would be more interesting to me (and not indicative of being ready for a quiet retirement with fewer disturbances in life).
  - arockwell 18y ago
    I think a simpler line of reasoning is that the Democrats have a bit more control over the bill, and have been able to get in terms that Democrats favor more than the Republicans have been able to.
    - LostInTheWoods 18y ago
      The Democrats have the majority in both houses and could pass the bill without the Republicans if they wanted. They don't do that because they want consensus, especially so close to the election.
    - SwellJoe 18y ago
      The issue is that from my understanding, it's a really bad bill. I think it shows a striking lack of character to vote for a bad bill because it happens to contain some earmarks or other terms you (and your biggest contributors) happen to like. The older I get, the more I realize that character in politicians is far more important than ideology. Decent people can disagree on the right way to solve the problems our nation faces, including this (very large) one...but lining the pockets of supporters at the expense of everyone else in the nation, particularly those least able to protect their assets, strikes me as a despicable and crassly self-serving act. The only way to a solution that most everybody can agree on is to honestly discuss the issues. With a bill named "To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes" that hands $700 billion (actually more...) over to a fellow who'll be doling it out to all of his old buddies from the finance industry with no oversight, we've already established that no sane discussion can take place. It's classic doublespeak on the order of the best the Soviets and Red Chinese ever came up with, and that duplicity in and of itself is enough to disqualify this bill from consideration by honest folks. This is actually a prime example of why I genuinely like Ron Paul. I disagree with him on some major issues (immigration and abortion being the biggest), but I know where he stands, and I know he believes in what he says and acts accordingly. I think I'd like to see a lot more of that, from any side of the political spectrum. But, it seems like crooked Republicans get voted out only to be replaced by crooked Democrats. I'd be happy with a batch of honest Democrats or a batch of honest Republicans, but it seems the only way to keep them close to honest is to keep churning new people in, keep the parties roughly in balance, and keep them at each others throats so they can do the least amount of damage possible.
cbrinker 18y ago
This bill cannot pass. We will only make the problem that much worse in the end. We will be proping up this failed system to continue on. The legislation is so vague and flimsy it's virtually worthless. The patching of the credit liquidity crisis right now is like using corks to patch a leaky submarine. Not only that, but you don't have enough corks to patch all the holes. We are going to see a large recession in all of our markets. Even if you pass this bill, no serious economist knows the extent of the financial crisis. All of them can gaurentee, though, that it will be far above $1tril. Don't fall for this nonsense the politicians and the rich are spouting about. They only want to sustain this failed lesse faire market and continue to benefit from it. We need our economy to be entirely restructured and this is the time to do that.
soundsop 18y ago
Good. Now get to work devising a bill that has more oversight and whose tactics are more agreed upon by economists (capital injection a la Sweden in '92: http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html http://www.nytimes.com/2008/09/23/business/worldbusiness/23k...). Sweden spent 5% of its GDP but recouped 3% of GDP, for a 2% GDP net cost. Did anyone believe that 60% of the money spent by this defeated bill would have been recouped?
- fallentimes 18y ago
  Brilliant article - I've been sharing it with friends all day.
- krschultz 18y ago
  Well up to 40% could default on them before you got to that point. Right now no one knows what the rate will ultimately be. In some areas it is already 60%, but in some areas it is 5%, so 40% nationally would be a very high number. At that point the better question would be what to do with so many bankrupt people.
  - soundsop 18y ago
    Remember, the 700 billion would purchase the worst bank assets, so presumably the associated mortgages would default at significantly higher rates than the national average.
msg 18y ago
I forget where I read this (Andrew Sullivan?). Someone predicted that now the Democrats will put out a new bill and it'll be voted through the house along party lines. Bush could veto it in the middle of his financial armageddon, or sign something with real teeth in it... It seems like just buying equity in the failing companies is a more direct way to deal with the problem than throwing money at the problem, in exchange for promises that Paulson will write up warrants that benefit the American taxpayer.
fallentimes 18y ago
Less than 75 years ago, it was essentially illegal in this country to be black. I wouldn't trust our government to clean up dog shit let alone handle $700 billion dollars trying to bail out our retarded amateur-hour financial institutions.
- njs 18y ago
  true
deleted 18y ago
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tlrobinson 18y ago
Forgive me if this is obvious, but I'm not sure most people realize that this wouldn't be $700 billion going straight from taxpayers to banks. The actual cost to taxpayers will be much less. The $700 billion would be used to purchase assets from banks, and sold to investors at a later time.
- krschultz 18y ago
  I've been saying that too, and yet most people don't realize that it would based off the default percentage. Do we really think 100% of people would default? I don't.
- chaostheory 18y ago
  well when you don't know how much the asset was bought for and how much the gov will sell it for - that's all just conjecture. Records of the transactions themselves will not be publicly available; they will only be given to two small committees.
- soundsop 18y ago
  The $700 billion is a balance sheet number. My understanding was that the total amount to be spent had no preset limit in the defeated bill. In the end it's true that nobody knows what it'll cost. It cost Sweden between 0 and 2% (depending on accounting method) of their GDP in 1992 according to http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html http://www.nytimes.com/2008/09/23/business/worldbusiness/23k.... The $700 billion figure is about 5% of US GDP.
patrickg-zill 18y ago
You cannot fix a structural defect with wallpaper.
azharcs 18y ago
Maybe this video really went viral. http://www.youtube.com/watch?v=lsC2k9opOP0 http://www.youtube.com/watch?v=lsC2k9opOP0
MaysonL 18y ago
One point not mentioned in the article. The subgroup of the House that was most in favor of the bill were those with the least conflict of interest between their personal political future, and the good of the country as they perceived it: the Representatives who were not running for reelection. They were overwhelmingly in favor. What does that say about the state of our democracy
- jhancock 18y ago
  You can read this different ways. "those with the least conflict of interest between their personal political future" But those not up for reelection could do business as usual, right? Most of us think that "business as usual" means legislation not in the interest of the many. I don't think your perspective is clear.
ctkrohn 18y ago
In their infinite wisdom, Congress decided to wipe out $1.2 trillion in market capitalization by not passing the plan, thus costing the economy $500 billion more than the bailout would have -- assuming the bailout would have no effect at all. Brilliant.
- jhancock 18y ago
  uh...wrong. You cannot know if investor confidence will be stronger or weaker with this bailout. Time will tell and we only get to play it one way. There are no "do overs" here.
kirse 18y ago
Just as a heads up, this vote now passed: http://money.cnn.com/2008/10/03/news/economy/house_friday_bailout/index.htm?postversion=2008100309 http://money.cnn.com/2008/10/03/news/economy/house_friday_ba...

130 points by kirse 18y ago

wd40 18y ago

and the dollar surges! (re: biggest dollar gains in 15 years)

dougp 18y ago
where do you see this I'd like it to be true.
- wd40 18y ago
  http://business.timesonline.co.uk/tol/business/markets/article4844255.ece http://business.timesonline.co.uk/tol/business/markets/artic... "As nine central banks used currency swaps to oil the wheels of dollar liquidity in the money markets, sterling plunged and was on course for its steepest one-day drop against the dollar for at least a decade and a half."

quasimojo 18y ago

good! lawmakers on the radio today were saying 90% of their callers were against it. this is a victory for the stingy saver who doesn't obsess over vacation homes and luxury cars. every THING is about to go on sale, and the prudent will have their day. taxpayers who pay their bills and live wisely don't need credit, they live on cash. these people should not be punished for the greed of everyone else on wall st and main st

run4yourlives 18y ago
this is a victory for the stingy saver who doesn't obsess over vacation homes and luxury cars. Unfortunately, 90% of America isn't described in the above sentence.
- fallentimes 18y ago
  Well, in a way, they sort of had it coming with their negative savings rates and all. Personal accountability really does go to die in the States although other countries are approaching our levels. Fat? Liposuction. Ugly? Plastic surgery. Don't want to exercise or eat right? Pills. Poor? Welfare. Don't know what you're doing with massive gobs of money? $700 Billion Bailout!?
  - krschultz 18y ago
    What are you talking about? There are plenty of people who put 20% down on a fixed rate mortgage, are paying that off perfectly, and the market value of their house is now below what they paid for it. Those people are going to get hammered if they sell the house and owe the bank tens of thousands of dollars. In that situation you just don't sell your house. But what if you have to sell your house? Medical bills? Job changes? Want to retire? It's nice that you think you are superior to all this vain people, but this crisis is not about vain people getting fucked. It is about responsible people have their American dream burned to the ground by morons with oversized sub prime mortgages and the banks that lent to them. This goes beyond hurting the people who caused the mess!
    - fallentimes 18y ago
      Houses are not an investment vehicle. If you buy one, it should be the for the long-term. Otherwise - don't. And I do feel for the minority of people with special circumstances. I do not think I'm superior; I just try to know what I'm doing before acting. The people who took out those loans knew what they were getting in to, and if they didn't, they should have. If it sounds too good to be true... I'm well aware that this affects everyone in some way. We're at a point where fixing liquidity is crucial and something needs to be done, and we need to make sure to profit from any money lent. I really like what Sweden did: http://is.gd/3iO2 http://is.gd/3iO2 I just worry our government is going to react instead of decide.
      - krschultz 18y ago
transburgh 18y ago
What about those who are young and hacker-ish that have not had the chance to save (I mean compared to someone that has been working for 20 years)? Times might get a little tough.
- tomjen 18y ago
  Well, we will hack through it.
- kirse 18y ago
  Well, if you're worth nothing you have nothing to lose, that's the way I see it.
  - mechanical_fish 18y ago
    This is precisely correct. Not a joke at all. To first order, this is great for you. Stocks are going on sale. You want to do your saving immediately after the massive crash, not before. Of course, that's just the first-order analysis. The second-order problems are potentially, um, annoying: If the economy tanks you might not earn any money to save next year. And your joy at being able to invest in a bear market (because you've got plenty of time to wait for the recovery) might be dampened by the sight of your parents moving in with you to save money because their retirement fund just evaporated. (They don't have time to wait for a recovery.)
    - netcan 18y ago
      I think that the better statement is 'volatility creates opportunities.' For example, depressed real estate markets can create high demand for rentals. You might be able to make money each month on a mortgaged property (a real novelty in Australia for example). And if rental demand is high, prices will probably eventually recover. The issue is that a recession by definition means most people are worse off.
- run4yourlives 18y ago
  You guys are much better off. Those of us with houses and bills are going to hurt. Those of us with stretched lines of credit and a penchant for living above our means are really going to hurt.
biohacker42 18y ago
The Fed can still print money and screw us savers.
jeremytliles 18y ago
Ok, here's the thing: even if you disagree philosophically with the legislation that they put together, you still would be wise to be very worried about the overall state of the economy due to tight credit. Many businesses (good, solid, profitable businesses that employ hard-working people) fund their operations via credit markets that have seized up. Absent some kind of intervention (and I for one would like to see more ideas on the table), even your ideal "prudent" person will probably suffer. Just because you've done everything prudently on your own micro scale doesn't mean macro events can't hurt you.
- davidw 18y ago
  I can't pretend that I understand this whole thing, and am quite suspicious of anyone that says they do, who does not report on it more or less full time and have a good grasp of economics, but... one analogy that's come to mind is a car stopping. In one case, with the brakes, in another, by hitting a rock wall. The end result is still a stopped car, but there are some other differences that might be of interest to the occupants. In any case, most of the discussion that's worth anything is coming from economists, of which there are a wide variety to read. Most people on sites like this one don't seem to have the expertise to say much that's useful, either for or against (and that includes me, thanks). http://economistsview.typepad.com/ http://economistsview.typepad.com/ http://econlog.econlib.org/ http://econlog.econlib.org/ http://www.marginalrevolution.com/ http://www.marginalrevolution.com/ http://www.economist.com/blogs/freeexchange/ http://www.economist.com/blogs/freeexchange/ http://economix.blogs.nytimes.com/ http://economix.blogs.nytimes.com/ http://delong.typepad.com/ http://delong.typepad.com/ http://www.ft.com/cms/s/0/290ca9f6-8d8b-11dd-83d5-0000779fd18c.html http://www.ft.com/cms/s/0/290ca9f6-8d8b-11dd-83d5-0000779fd1... As you can see even those guys are peddling their own ideologies to various degrees, along with everyone else with vested interests - and that's a lot of people, because 700 billion combined with a potential collapse of the economy is pretty high stakes. This doesn't make it easier to understand.
  - run4yourlives 18y ago
    That's a great analogy. There's a brick wall looming up ahead, and we just cut the line to the brakes.
natrius 18y ago
The bailout isn't to help taxpayers get credit. It's to help businesses get credit so the prudent will still have jobs in a month. Everything may go on sale, but you can't go on a shopping spree when you're unemployed. The vast majority of the bailout criticisms I've heard are woefully uninformed.
- kingkongrevenge 18y ago
  You can't wave a magic wand and create real reserves to lend. Real credit comes from reserves of savings. This is about stopping a deleveraging process in the financial markets, not about ensuring the flow of credit to businesses. That's just the propaganda. Credit demand is collapsing as an economic bubble bursts and this is DRIVING the deleveraging. Not the other way around. If the economy were truly starved for credit you'd see 8% rates on CDs as banks scramble to raise reserves to lend out.
  - natrius 18y ago
    "Credit demand is collapsing as an economic bubble bursts and this is DRIVING the deleveraging." You're going to have to explain that more. How does lower credit demand force deleveraging? I was under the impression that the deleveraging is being caused my huge losses on heavily levered investments. "If the economy were truly starved for credit you'd see 8% rates on CDs as banks scramble to raise reserves to lend out." The markets for debt have just taken a huge beating. I'm guessing the banks aren't meeting the demand for credit because it has just become more difficult to sell debt. If they are having issues with the loans they've already made, it's easy to see why they aren't rushing to issue more. I can't prove that the economy is starved for credit, but it's clearly the conventional wisdom. If you're going to call that propaganda, you need to prove that the conventional wisdom is wrong.
    - kingkongrevenge 18y ago
      > I can't prove that the economy is starved for credit You can get a loan at very reasonable rates right now if you meet the criteria. That's just a fact, and I'm not in a mood to give you documenting links. Outstanding credit continues to grow at only a slightly lower rate than before. There is not a credit shortage. There is a shortage of viable uses for credit. There is huge overcapacity in retail, housing, etc. People who can't reasonably be expected to pay back loans can't get them right now. Which is basically a good thing. Businesses can't get loans to expand because nobody in their right mind thinks many kinds of business SHOULD be expanding. The macro-economic conditions are driving the markets, not the other way around. The financial firms are suffering because the REAL economy ran out of greater fools and hit its maximum tolerable debt load. The real economy is not shuddering because the masters in Wall Street can't grease the wheels; it's the other way around.
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echair 18y ago
This is a victory for the stingy saver Not if he has his savings in stocks. In fact, if he followed the conventional wisdom and put (100 - age) percent of his assets in stocks, a 40 y.o. stingy saver just lost 5% of his savings today alone. Which is almost certainly more than his share of the $700 billion.
- byrneseyeview 18y ago
  Tax rates are negative, zero, or nominal for most people. There are perhaps 100 million people who pay a substantial amount of income taxes in the US (I am fudging around various numbers to make the math easier, here; see http://www.taxfoundation.org/research/show/1410.html http://www.taxfoundation.org/research/show/1410.html for information on how many people simply don't pay taxes). So that's an average of $7000 per serious taxpayer. $7000 is 5% of $140,000. Do you think a typical 40 year-old taxpayer has a $140,000 equity portfolio?
krschultz 18y ago
Not exactly true, there are plenty in good financial standing who had prime mortgages on their single residence, a place they have owned for 10+ years, that because of the depreciation in the market can now no longer sell their home without owing a huge amount to the bank for the difference. That means you can't sell your home if you have to, what if your job tells you that you have to move? What if you have to sell your house to use the cash for medical bills? There are a lot of people really hurting from this, just because we're a bunch of hackers living in apartments saying HAHA now I can buy a house! Doesn't mean that families who made previously responsible decisions are not getting really hammered. To say "GOOD!" to this is incredibly callous and most likely a sign of great ignorance to what is really going on.
- burnout1540 18y ago
  Unless you live in an unbelievably depressed area like downtown Detroit (and maybe not even then), home prices in America are substantially higher than they were 10 years ago. So anyone who has had a fixed rate mortgage for 10+ years (unless they've been treating their house as an ATM) is looking at a profit if they sell their house. In fact, according to the Case-Shiller index, homeowners in the 20 largest metro areas of the U.S. have seen their homes increase in value by over 60% between January 2000 and June 2008. Of course, this is down from 106% as of the summer of 2006. Falling house prices have definitely put a large number of homeowners underwater, but these people either bought in the past few years or took out one or more HELOCs (home equity line of credit).

TweedHeads 18y ago

Where can we see how they voted? I want to keep an eye on those 205 SOBs

furiouslol 18y ago
http://clerk.house.gov/evs/2008/roll674.xml http://clerk.house.gov/evs/2008/roll674.xml
gills 18y ago
it's here as well: http://www.govtrack.us/congress/vote.xpd?vote=h2008-674 http://www.govtrack.us/congress/vote.xpd?vote=h2008-674
Jasber 18y ago
Can anyone explain to me why the Republican's went against Bush on this one? I've been reading and racking my brain and it doesn't make sense to me.

lisper 18y ago

http://rondam.blogspot.com/2008/09/ive-never-been-so-happy-to-lose-money.html http://rondam.blogspot.com/2008/09/ive-never-been-so-happy-t...

railsjedi 18y ago

Wow. And it's only Monday. Things are going to get exciting this week. Dow 8-9k.. any predictions? Fortunes are made buying in bear markets. Though I wouldn't suggest its easy to recognize the bottom.

biohacker42 18y ago
8K would be a reasonable valuation.
- fallentimes 18y ago
  Based on what? Historical P/E FCF valuations?
  - railsjedi 18y ago
    Heh, one of the only reasons I stick to buying index funds is because I don't have the energy to learn what those terms mean.
    - fallentimes 18y ago
      Ha! One of the reasons I stick to buying low cost index funds is because I know what those terms mean and have realized finance is mostly a fools game. Especially hedge funds. Different means - same ends.
      - kirse 18y ago
        I agree with the "index fund" approach. Too many people get caught up playing the market or paying out the butt to some "financial advisor" who doesn't have much more of a clue where the economy is going than your Average Joe. Just stick it in an index fund and let compound interest be your friend.
  - biohacker42 18y ago
    Gut feeling :)

briansmith 18y ago

Stocks are only down ~6%. The Dow is regularly going up and down hundreds of points at a time these days, -571 points is not really that big of a deal. Plus, what would you expect to happen? Investors were counting on about $1 Trillon of free money from the government, and then the government pulled it back at the last minute. In a few days there will be news of a new deal and the DJIA will be up 500 points again. And, if the House of Representatives keeps doing its job, then the DJIA will fall 500 points again when the next "no" vote comes.

run4yourlives 18y ago
Well, I wouldn't equate a single day's loss to mean much. The DOW is going to get lower and lower, even if it has a few blips here and there. The key is this: The DOW dropped 500 points because nothing happened. Theoretically, the markets are in the exact same position they were in Friday, yet they fell. Once more Wachovias start pilling up, that's when you'll see the slide begin.
- prospero 18y ago
  Same exact position as Friday, minus the prospect of $700 billion. That's not a trivial difference.
  - run4yourlives 18y ago
    I'm not suggesting it's trivial. I'm simply suggesting that the worst is probably yet to come.
tlrobinson 18y ago
And while it's the biggest single day point loss, it's not even in the top 10 percentage losses.
- kirse 18y ago
  Not to mention the majority of it bounced back the next day.

yummyfajitas 18y ago

Did anyone notice the title of the bailout? "To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes" I think the real reason it failed is that they didn't title it "Flags for Orphans and other stuff".

briansmith 18y ago
I came here to post the same thing. I was sure that I had found the wrong roll call aftering seeing the title of the bill.
gaika 18y ago
The next bill will be titled: To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to software developers, information architects and dolphin trainers
samwise 18y ago
People assume that 1.2 trillion was lost(stock market). However that money still exists, just the ownership has changed. Today was probably the largest transfer of wealth ever. In my opinion this is a good thing. You can't have unchecked growth forever. You need to have a downturn to jolt consumer confidence and investor confidence.
- slackerIII 18y ago
  So when my portfolio dropped today, who exactly got that money? I didn't sell any stocks, mind you. I just had X dollars worth of stock this morning, and now I have < X.
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cellis 18y ago

So an administration that no one trusts can't pass a bill that would enact the largest transfer of wealth in history - from American people - to reckless financial institutions that don't even trust themselves? Astounding!

arockwell 18y ago
That pretty much sums up my view point. I really don't understand much of what is going on (who really does honestly?), but I certainly know I can't trust anyone involved in this clusterfuck.
- timr 18y ago
  What's really interesting about this is (IMO) is that the Republicans are the ones largely responsible for the failure. The president's own party is revolting against him.
  - timr 18y ago
    It's a factually true statement, folks. Check the vote counts, and you'll see that it went down along party lines, with Republicans in the majority of the 'no' votes. In fact, over 67% of House Republicans voted against the bill. The White House lobbied heavily for the measure, and the Republicans in the House shot it down. That's interesting.
    - Prrometheus 18y ago
      Republicans in the House of Representatives have been the most Conservative caucus in any branch of government for at least the past few decades.
  - mnemonik 18y ago
    Perhaps they were gambling that enough dems would vote for it (because of the scare tactics of reading out the dows stock starting to crash right before the vote) so that it would pass, and later when the bailout became the political failure it was destined to become they could point to dems as responsible. American voters have a very short memory, and few check facts. I'm sure that the fact that this is so closely connected to Bush could be forgotten with an excellent mudslinging campaign. Then the Repubs would be able to take seats in the next congressional round of elections.

Harkins 18y ago

http://projects.washingtonpost.com/congress/110/house/2/votes/674/ http://projects.washingtonpost.com/congress/110/house/2/vote... If you're interested in how specific Representatives voted, we (I work at the Post) grabbed the data before house.gov keerashed.

SwellJoe 18y ago
I'm surprised by the vote tallies. Democrats voted 140 yes and 95 no, while Republicans voted 65 yes and 133 no. So, either Republicans (in the House) have more integrity than I'd given them credit for lately (and more than Democrats, on the whole), or I have less understanding of the bill than I thought I did. Also, the Washington Post is either a little bit batshit crazy, or they have a strange sense of humor: You can sort the results by astrological sign. If you really wanted to have one more sorting type...the length of time in office would be more interesting to me (and not indicative of being ready for a quiet retirement with fewer disturbances in life).
- arockwell 18y ago
  I think a simpler line of reasoning is that the Democrats have a bit more control over the bill, and have been able to get in terms that Democrats favor more than the Republicans have been able to.
  - LostInTheWoods 18y ago
    The Democrats have the majority in both houses and could pass the bill without the Republicans if they wanted. They don't do that because they want consensus, especially so close to the election.
  - SwellJoe 18y ago
    The issue is that from my understanding, it's a really bad bill. I think it shows a striking lack of character to vote for a bad bill because it happens to contain some earmarks or other terms you (and your biggest contributors) happen to like. The older I get, the more I realize that character in politicians is far more important than ideology. Decent people can disagree on the right way to solve the problems our nation faces, including this (very large) one...but lining the pockets of supporters at the expense of everyone else in the nation, particularly those least able to protect their assets, strikes me as a despicable and crassly self-serving act. The only way to a solution that most everybody can agree on is to honestly discuss the issues. With a bill named "To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes" that hands $700 billion (actually more...) over to a fellow who'll be doling it out to all of his old buddies from the finance industry with no oversight, we've already established that no sane discussion can take place. It's classic doublespeak on the order of the best the Soviets and Red Chinese ever came up with, and that duplicity in and of itself is enough to disqualify this bill from consideration by honest folks. This is actually a prime example of why I genuinely like Ron Paul. I disagree with him on some major issues (immigration and abortion being the biggest), but I know where he stands, and I know he believes in what he says and acts accordingly. I think I'd like to see a lot more of that, from any side of the political spectrum. But, it seems like crooked Republicans get voted out only to be replaced by crooked Democrats. I'd be happy with a batch of honest Democrats or a batch of honest Republicans, but it seems the only way to keep them close to honest is to keep churning new people in, keep the parties roughly in balance, and keep them at each others throats so they can do the least amount of damage possible.

cbrinker 18y ago

This bill cannot pass. We will only make the problem that much worse in the end. We will be proping up this failed system to continue on. The legislation is so vague and flimsy it's virtually worthless. The patching of the credit liquidity crisis right now is like using corks to patch a leaky submarine. Not only that, but you don't have enough corks to patch all the holes. We are going to see a large recession in all of our markets. Even if you pass this bill, no serious economist knows the extent of the financial crisis. All of them can gaurentee, though, that it will be far above $1tril. Don't fall for this nonsense the politicians and the rich are spouting about. They only want to sustain this failed lesse faire market and continue to benefit from it. We need our economy to be entirely restructured and this is the time to do that.

soundsop 18y ago

Good. Now get to work devising a bill that has more oversight and whose tactics are more agreed upon by economists (capital injection a la Sweden in '92: http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html http://www.nytimes.com/2008/09/23/business/worldbusiness/23k...). Sweden spent 5% of its GDP but recouped 3% of GDP, for a 2% GDP net cost. Did anyone believe that 60% of the money spent by this defeated bill would have been recouped?

fallentimes 18y ago
Brilliant article - I've been sharing it with friends all day.
krschultz 18y ago
Well up to 40% could default on them before you got to that point. Right now no one knows what the rate will ultimately be. In some areas it is already 60%, but in some areas it is 5%, so 40% nationally would be a very high number. At that point the better question would be what to do with so many bankrupt people.
- soundsop 18y ago
  Remember, the 700 billion would purchase the worst bank assets, so presumably the associated mortgages would default at significantly higher rates than the national average.

msg 18y ago

I forget where I read this (Andrew Sullivan?). Someone predicted that now the Democrats will put out a new bill and it'll be voted through the house along party lines. Bush could veto it in the middle of his financial armageddon, or sign something with real teeth in it... It seems like just buying equity in the failing companies is a more direct way to deal with the problem than throwing money at the problem, in exchange for promises that Paulson will write up warrants that benefit the American taxpayer.

fallentimes 18y ago

Less than 75 years ago, it was essentially illegal in this country to be black. I wouldn't trust our government to clean up dog shit let alone handle $700 billion dollars trying to bail out our retarded amateur-hour financial institutions.

njs 18y ago
true

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tlrobinson 18y ago

Forgive me if this is obvious, but I'm not sure most people realize that this wouldn't be $700 billion going straight from taxpayers to banks. The actual cost to taxpayers will be much less. The $700 billion would be used to purchase assets from banks, and sold to investors at a later time.

krschultz 18y ago
I've been saying that too, and yet most people don't realize that it would based off the default percentage. Do we really think 100% of people would default? I don't.
chaostheory 18y ago
well when you don't know how much the asset was bought for and how much the gov will sell it for - that's all just conjecture. Records of the transactions themselves will not be publicly available; they will only be given to two small committees.
soundsop 18y ago
The $700 billion is a balance sheet number. My understanding was that the total amount to be spent had no preset limit in the defeated bill. In the end it's true that nobody knows what it'll cost. It cost Sweden between 0 and 2% (depending on accounting method) of their GDP in 1992 according to http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html http://www.nytimes.com/2008/09/23/business/worldbusiness/23k.... The $700 billion figure is about 5% of US GDP.

patrickg-zill 18y ago

You cannot fix a structural defect with wallpaper.

azharcs 18y ago

Maybe this video really went viral. http://www.youtube.com/watch?v=lsC2k9opOP0 http://www.youtube.com/watch?v=lsC2k9opOP0

MaysonL 18y ago

One point not mentioned in the article. The subgroup of the House that was most in favor of the bill were those with the least conflict of interest between their personal political future, and the good of the country as they perceived it: the Representatives who were not running for reelection. They were overwhelmingly in favor. What does that say about the state of our democracy

jhancock 18y ago
You can read this different ways. "those with the least conflict of interest between their personal political future" But those not up for reelection could do business as usual, right? Most of us think that "business as usual" means legislation not in the interest of the many. I don't think your perspective is clear.

ctkrohn 18y ago

In their infinite wisdom, Congress decided to wipe out $1.2 trillion in market capitalization by not passing the plan, thus costing the economy $500 billion more than the bailout would have -- assuming the bailout would have no effect at all. Brilliant.

jhancock 18y ago
uh...wrong. You cannot know if investor confidence will be stronger or weaker with this bailout. Time will tell and we only get to play it one way. There are no "do overs" here.

kirse 18y ago

Just as a heads up, this vote now passed: http://money.cnn.com/2008/10/03/news/economy/house_friday_bailout/index.htm?postversion=2008100309 http://money.cnn.com/2008/10/03/news/economy/house_friday_ba...