Congress Will Likely Vote Again On Rescue Package Later This Week
Yesterday’s stunning defeat in the House for the $700 billion bank rescue package for the financial system sent shock waves through the stock market and party leaders are already stating that some members are regretting their decisions. There is renewed optimism that if the bill is brought forth again later this week it will likely pass.
There has been an outpouring of support that has surfaced for the bailout after markets reacted negatively to yesterday’s vote. What you could say was surprising about the vote is that there were substantial portions of both parties that voted against the measure, about 40 percent of Democrats and two-thirds of Republicans.
The chaos ensuing in financial markets knows no party lines and it is understandable that many members of Congress have reservations of about adding a bailout package to the deficit that is significantly larger than the 2008 Defense Budget. A major reservation is that once they open the wallet, it may not be the last time.
Analysts have been predicting that the worst has been over for months but that has simply not been the case. While markets have shown slight rebounds here and there, the fact of the matter is that with so much volatility currently, the slightest bad news can send markets reeling.
Much of the planned bailout package is to be used to prop up a sagging banking system as the government becomes the buyer of last resort for illiquid mortgage assets in order to free up capital so that banks can start lending again. The biggest questions are how much the government will pay for these assets and whether this will only serve to transfer losses from financial institutions to the American taxpayers.
A major problem with the rescue plan is that is does little to address the cause of our current financial woes, which is a sagging housing market. What’s to keep the financial system from needing more money six months down the road because home prices keep falling.
