Too little, too late?
Too little, too late?
Washington - The US House of Representatives approved a revised $700 billion financial rescue plan on Friday, and President George W Bush signed it into law within hours. But US stocks quickly dropped as investors concluded it was not nearly enough to loosen up credit markets and prevent a recession.
The law paved the way for the largest government intervention in capital markets in the history of the country.
It allows the government to acquire up to $700 billion in soured mortgage assets that are at the heart of the credit crisis.
The House voted by a resounding 263-171 in favour after rejecting an earlier version of the bill by 228-205 on Monday. The Senate approved the same package on Wednesday.
“By coming together on this legislation we have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country,” Bush said in a statement at the White House.
US stocks dropped over concerns that that the $700 billion rescue plan approved earlier in the day by the House of Representatives would not be enough to loosen up credit markets and prevent a recession.
Major US stock indices were up more than 1 per cent shortly after the vote, but slid by closing.
The broad-based Standard & Poor’s 500 Index dropped 15.05 points, or 1.35 per cent, to 1,099.23. The Dow Jones index of blue chips fell 157.47 points, or 1.50 per cent, to 10,325.38. The Nasdaq high tech composite index slid 29.33 points, or 1.48 per cent, to 1,947.39.
Bush warned that it would take some time for the new legislation to have its full impact on the economy. Treasury Secretary Henry Paulson, the architect of an original rescue plan, promised to move “rapidly” but “methodically” with his new powers.
The legislature approved the bill in a mood of resignation. Many members found themselves in a politically untenable position just one month before the November 4 general election.
Congress has received tens of thousands of phone calls from angry voters who oppose using tax money to rescue Wall Street from investments gone wrong.
Democratic Representative Charles Rangel of New York kicked off the debate with a complaint that Congress was acting on the plan “with a political gun at our heads.”
Government officials and congressional leaders from both parties had warned legislators of the dire consequences of another failed vote, and promised future measures to keep better tabs on financial institutions and keep the economy going.
“Now that we’ve dealt with the immediate emergency, it’s time to bring our economy back to full health,” said Democratic Majority Leader Steny Hoyer, who noted earlier that the world was watching the US legislature’s actions.
Members of the House let out a cheer as it became clear that the 218-vote threshold had been passed. But many warned there was no cause for celebration, and that a recession for the world’s largest economy was still likely.
“Let’s not kid ourselves. We’re in the midst of a recession. It’s gonna be a rough ride, but it will be a whole lot rougher ride if we don’t pass this bill,” Republican Minority Leader John Boehner said ahead of the vote.
Some representatives were moved to support the new version by the massive stock market crash that followed Monday’s failure, and welcomed some of the tax provisions and bank savings guarantees for average Americans that have since been added to the bill.
Others noted that the call volume from constituents had evened out since the earlier vote, with many people now calling to urge passage of the plan out of concern for their pensions and ability to get credit at the bank.
“I’m not exclusively dictated by telephone calls and emails, but neither do I dismiss them,” said Howard Coble, a Republican from North Carolina, who voted no on Monday but said he since changed his mind. “By having waited, I think we did improve the bill.”
The vote came as the US Labour Department reported that 159,000 jobs were lost in September, bringing the total for the year to nearly 800,000. The unemployment rate held steady at 6.1 per cent.
Bush said the jobless report “underscores the urgency” of government intervention.
The Senate adopted the revised legislation Wednesday night in a 74-25 vote, after it was sweetened with a year-long increase in government-backed guarantees for bank deposits from $100,000 to $250,000, extensions of tax credits for renewable energy and small businesses and tax changes that will benefit the middle class.
But some House Republicans and Democrats objected to some of the sweeteners, which included non-related items such as requiring health insurers to provide parity of coverage for mental illness as well as physical ailments and removing an excise tax from a company in Oregon that makes wooden arrow shafts.
The original three-page bill submitted by the White House two weeks ago has grown to more than 400 pages.
It continued to face strong opposition from members who opposed a government bail-out of the free market purely on principle and others who accused the administration of fear-mongering in order to protect the balance sheets of a few financial institutions.
Representative Marcy Kaptur, a Democrat from Ohio, said Wall Street had orchestrated the “biggest heist of the century” in convincing Congress to invest $700 billion into mortgage securities. (dpa)
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Tags: Blue Chips, Capital Markets, Composite Index, Credit Crisis, Credit Markets, Dow Jones, Dow Jones Index, George W Bush, Government Intervention, Henry Paulson, Mortgage Assets, Nasdaq, New Legislation, President George W Bush, Recession, S 500, Stock Indices, Treasury Secretary, Untenable Position, Us House Of Representatives