Collectivity
01-10-2008, 00:07
Nightmare on Wall Street and Washington:eek2:
America’s economic crisis with the collapse of Lehman Brothers and near collapse of home lending lending giants, Freddie Mac and Fannie Mae turned into a political crisis when President George W Bush’s 700 billion dollar bailout package was voted down in Congress. Will Bush's second attempt at a rescue be any more successful than the first? What do you think?
Congress moves to have a second go
Anne Davies
The Age October 1, 2008
CONGRESSIONAL leaders were scrambling yesterday to organise a new vote on the $US700 billion ($A853 billion) Wall Street bail-out as US stockmarkets suffered a record 777-point fall after the House of Representatives' surprise rejection of the package.
Because of a Jewish holiday, the earliest the bill can return is on Friday. One option is to introduce it in the Senate then take it back to the House — if the numbers needed to pass it can be found.
But Republican and Democrat negotiators are struggling to forge a majority in the House without substantial revisions to the bill — and therein lies a dilemma: Democrats want more help for home owners and more intervention, while the Republican hold-outs want less commitment of taxpayer funds and more reliance on the private sector.
The blame for the bill's shock defeat appeared to lie with House Republicans even though it is being pushed by the Republican President, George Bush, and Treasury Secretary Henry Paulson. During the debate, House Republicans branded the bail-out a betrayal of Reagan principles of small government and balanced budgets.
Many had hoped that the speech by the Republican minority leader, Jim Boehner, initially an opponent, would swing his party.
Branding it a "mud sandwich", Mr Boehner implored his colleagues to vote for the bill, warning that this kind of vote "sorted the men from the boys and the women from the girls". He said: "I ask you on both sides of the aisle to do what is in the best interests of your country: vote yes."
But 94 Democrats — roughly a third — and 133 Republicans — roughly two-thirds — joined forces to defeat the bill 228 to 205.
Before the count was even finalised, the Dow began plummeting.
The recriminations began immediately. Republicans claimed that a partisan speech by Democratic Speaker Nancy Pelosi had caused 12 Republicans to change their votes.
Speaking on the floor of the chamber, she said: "The $700 billion is staggering, but tells us only the costs of the Bush Administration's failed economic policies — policies built on budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision and no discipline in the system."
Democrats countered with their own attack, claiming the Republicans never had the numbers, and their leaders and President Bush must take responsibility for the failure.
The failure of the vote is an embarrassment for Republican John McCain, who put his presidential campaign on the line by coming to Washington to persuade Republicans. He accused his rival Barack Obama and the Democratic leadership of playing politics on the issue.
Senator Obama said: "This is a moment of national crisis … Now is the time for Democrats and Republicans to join together and act in a way that prevents an economic catastrophe."
Shock as rescue plan unravels
Doyle McManus, Washington
October 1, 2008
PRESIDENT Bush lobbied. Treasury Secretary Henry Paulson pleaded. Vice-President Dick Cheney worked on conservative Republicans. House Speaker Nancy Pelosi coaxed liberal Democrats. Barack Obama lobbied gently. John McCain worked the phones and boasted about how effective he was.
But all that leadership failed to command much loyalty in either party. When the financial rescue plan came to a vote, two-thirds of the House's Republicans and two-fifths of its Democrats ignored their leaders' pleas and voted no.
The surprise defeat yesterday of the Bush administration's financial rescue plan was a product of the waning influence of a lame-duck president and the nervousness of members of Congress, whose institution is even less popular and who faced a flood of angry messages from constituents. Senators McCain and Obama are more popular, but neither candidate embraced the bail-out measure enthusiastically before the vote.
Their cautiousness, combined with the unpopularity of other senior political leaders, left rank-and-file members of Congress free to draw their own conclusions about how to react to public scepticism, just five weeks before election day.
"We're all worried about losing our jobs," Republican representative Paul Ryan, who voted in favour, said in a speech in the House. "Most of us say, 'I want this thing to pass, but I want you to vote for it — not me.' "
The rescue plan, which would have allowed the Treasury to spend as much as $US700 billion ($A866 billion) to buy distressed investments from troubled financial institutions, was always going to be a hard sell.
No grassroots constituency supported the idea. Instead, conservative Republicans protested the bill as a federal intrusion in private enterprise, while liberal Democrats complained that it rescued wealthy investors but didn't give home owners a refuge in bankruptcy to avoid foreclosure.
Members of Congress were flooded with messages from voters urging them to vote no. In the final hours before the vote, AFL-CIO President John Sweeney, who is bankrolling campaigns to assist Democratic candidates, condemned the plan. Influential conservative groups such as the Club for Growth and FreedomWorks called for its defeat.
Paradoxically, though, many House members who voted no came from safe districts — districts in which voters are overwhelmingly conservative or liberal. That's partly because, over years of redistricting, many House districts have become polarised, and members from those districts have less incentive to compromise.
"They don't face any backlash to this vote," congressional scholar Norman J. Ornstein said. "Their constituents will say, 'Right on.' "
Since at least 1990, when Newt Gingrich, then a Georgia congressman, led a conservative revolt against a budget plan sponsored by fellow Republican and former president George H. W. Bush, bipartisan compromise has been rare in the House. Instead, Republicans and Democrats have focused on sharpening their conflicts, each hoping to push the other out of power.
"When you're counting on the minority party (to help pass a bill), that's difficult," said John Feehery, a former top Republican aide. "The minority doesn't trust the majority. They don't want to help them out."
Pleas from a president might not work, either — especially if the president's public standing has fallen to record lows. White House spokesmen said President Bush called dozens of GOP members of Congress, but his efforts appeared to bear little fruit. Joe Barton, a Texas Republican, said the president called him, but the lawmaker explained that he preferred to listen to his constituents.
In such a situation, even a powerful Vice-President such as Mr Cheney no longer can command votes from House members. Nor did Republican members appear to pay much heed to their presidential nominee.
Over the weekend, aides said, McCain spoke to at least 11 House members to try to help round up votes. On Monday morning, he told a rally in Ohio that his intervention had helped improve the expected deal.
Of the 11 lawmakers the McCain campaign said the nominee talked to on Sunday, seven voted for the measure, although five of those were members of the House GOP leadership. Four, including two from Arizona, did not.
The voices of angry constituents seemed to count most. "When Congress' approval rating is so low, when the president is such a lame duck, and when your constituents are calling … you run," Feehery said.
LOS ANGELES TIMES
Blood on the streets
The Age, October 1, 2008
In America, Main Street has turned on a struggling Wall Street - with the politicians helping pull the trigger. By Nils Pratley and Steve Pearlstein.
IT WAS a bad plan - but it was a plan. The refusal of Congress to back Treasury Secretary Hank Paulson's bail-out takes the US into new territory. George Bush told Americans to expect "a serious financial crisis" and "a long and painful recession" if the legislation was blocked. Paulson went down on his knees to beg for support. But opposition from ordinary Americans killed the bill.
Some horsetrading in Washington may yet produce a revised deal that would be acceptable to the politicians, but the banks know there will be no easy handouts: Main Street, for better or worse, wants to see Wall Street suffer. In an election year, voters get what they want.
But Americans have failed to understand that they are facing the real prospect of a decade of little or no economic growth because of the bursting of a credit bubble that they helped create and that now threatens to bring down the global financial system. And politicians are worried less about preventing a financial meltdown than about ideology, partisan posturing and teaching people a lesson.
Financiers, in the meantime, have yet to own up publicly to their own greed, arrogance and incompetence.
In the coming weeks and months, all of these people will come to understand how deep the hole really is and how we're all in it together.
They'll come to understand that the giant sucking sound they hear is of a massive deleveraging of the global economy and the global financial system as households and governments, businesses and investment funds adjust to living in a world with less debt and more inflation.
And they will come around, reluctantly, to the understanding that the only way to get out of these situations is to have governments all around the world borrow gobs of money and effectively nationalise large swathes of the financial system so it can be restructured, recapitalised, reformed and returned to private ownership once the crisis has passed and the economy has gotten back on its feet.
The immediate challenge for the central banks is simply to keep the banking system functioning - ensuring that payments are processed and that companies can continue to pay everyday bills, such as wages. The will have to step up their efforts to maintain liquidity in money markets and prevent the credit crunch from taking down hedge funds, businesses, and state and local governments.
The Federal Reserve will flood the market with emergency funds. The sums were already staggering. Before the vote in Congress yesterday the Fed released $US620 billion. The number may get bigger in the next few days. It's a case of using "all tools available", as the Treasury put it. These could also include emergency cuts in interest rates, as we saw after 9/11.
Even so, more bank collapses and takeovers look almost inevitable.
Money is flowing towards perceived safe havens at alarming speed. Ever since Paulson announced his plan 10 days ago, two of the biggest US commercial banks have been taken over and their shareholders wiped out; the British Government has nationalised home lender Bradford & Bingley; Fortis, Belgium's biggest bank, has been partly nationalised; and the crisis has spread into major institutions in Germany and Iceland. All that happened while the Paulson plan looked likely to be passed in some form.
In Washington politicians, if they are serious about finding a new bail-out model, will have to recognise the reasons why the last one failed.
Paulson and Bush misjudged the mood of the US. Paulson asked for authority to spend $US700 billion with no outside scrutiny, and offered Congress few details on how the cash would be spent. What prices would the Treasury pay? Paulson couldn't say, and no amount of muttering about "reverse auctions" could shift the perception that the taxpayer would be fleeced. His original proposal ran to just three pages. Bush's address to the nation lasted only 12 minutes. The voters saw arrogance - and they let their representatives know it.
This was a piece of legislation that had the full backing of the Republican leadership but it was rejected by its own rank-and-file politicians. America's right is sick and tired of what it sees as the hypocrisy shown by the Bush Administration and Wall Street leaders in this credit crisis.
The vote reflects a simple homespun philosophy, taught on verandas across the nation for generations. Just as with any right, the right to freedom comes with responsibility. But Wall Street is seen as trying to shun its responsibilities and that is what is angering so many Republicans on Capitol Hill.
But if the continuing economic meltdown forces Congress' hand, what form could a revised bill take? There would clearly have to be greater scrutiny of the Treasury's operation and tougher curbs on executive pay. But the markets will be concerned that the size of the bail-out will also be reduced.
Even before yesterday, $US700 billion had come to be seen in some quarters as too little. Worse, economists had started to question Paulson's approach to the problem. Many argued that buying distressed assets would not improve banks' basic problem that too little capital is supporting too much lending.
So a revised plan might mean offering capital to banks. In practice, that might involve the US Government taking stakes in financial institutions as a means of protecting taxpayers. Citigroup, in buying Wachovia yesterday, agreed to give $12 billion of preference shares to the banking regulator as part of a loss-sharing arrangement.
Restoring real stability to financial markets will, therefore, require the kind of systemic approach and extraordinary government interventions that the public has refused to authorise and finance.
In better times, the public might have put aside its reluctance in response to the strong and unified recommendation of political and business leaders. But it is a measure of how little trust remains in Washington and Wall Street that voters are willing to risk a hit to their wealth and income rather than follow their lead.
Agencies
http://www.theage.com.au/world/blood-on-the-streets-20080930-4r62.html?page=-1
America’s economic crisis with the collapse of Lehman Brothers and near collapse of home lending lending giants, Freddie Mac and Fannie Mae turned into a political crisis when President George W Bush’s 700 billion dollar bailout package was voted down in Congress. Will Bush's second attempt at a rescue be any more successful than the first? What do you think?
Congress moves to have a second go
Anne Davies
The Age October 1, 2008
CONGRESSIONAL leaders were scrambling yesterday to organise a new vote on the $US700 billion ($A853 billion) Wall Street bail-out as US stockmarkets suffered a record 777-point fall after the House of Representatives' surprise rejection of the package.
Because of a Jewish holiday, the earliest the bill can return is on Friday. One option is to introduce it in the Senate then take it back to the House — if the numbers needed to pass it can be found.
But Republican and Democrat negotiators are struggling to forge a majority in the House without substantial revisions to the bill — and therein lies a dilemma: Democrats want more help for home owners and more intervention, while the Republican hold-outs want less commitment of taxpayer funds and more reliance on the private sector.
The blame for the bill's shock defeat appeared to lie with House Republicans even though it is being pushed by the Republican President, George Bush, and Treasury Secretary Henry Paulson. During the debate, House Republicans branded the bail-out a betrayal of Reagan principles of small government and balanced budgets.
Many had hoped that the speech by the Republican minority leader, Jim Boehner, initially an opponent, would swing his party.
Branding it a "mud sandwich", Mr Boehner implored his colleagues to vote for the bill, warning that this kind of vote "sorted the men from the boys and the women from the girls". He said: "I ask you on both sides of the aisle to do what is in the best interests of your country: vote yes."
But 94 Democrats — roughly a third — and 133 Republicans — roughly two-thirds — joined forces to defeat the bill 228 to 205.
Before the count was even finalised, the Dow began plummeting.
The recriminations began immediately. Republicans claimed that a partisan speech by Democratic Speaker Nancy Pelosi had caused 12 Republicans to change their votes.
Speaking on the floor of the chamber, she said: "The $700 billion is staggering, but tells us only the costs of the Bush Administration's failed economic policies — policies built on budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision and no discipline in the system."
Democrats countered with their own attack, claiming the Republicans never had the numbers, and their leaders and President Bush must take responsibility for the failure.
The failure of the vote is an embarrassment for Republican John McCain, who put his presidential campaign on the line by coming to Washington to persuade Republicans. He accused his rival Barack Obama and the Democratic leadership of playing politics on the issue.
Senator Obama said: "This is a moment of national crisis … Now is the time for Democrats and Republicans to join together and act in a way that prevents an economic catastrophe."
Shock as rescue plan unravels
Doyle McManus, Washington
October 1, 2008
PRESIDENT Bush lobbied. Treasury Secretary Henry Paulson pleaded. Vice-President Dick Cheney worked on conservative Republicans. House Speaker Nancy Pelosi coaxed liberal Democrats. Barack Obama lobbied gently. John McCain worked the phones and boasted about how effective he was.
But all that leadership failed to command much loyalty in either party. When the financial rescue plan came to a vote, two-thirds of the House's Republicans and two-fifths of its Democrats ignored their leaders' pleas and voted no.
The surprise defeat yesterday of the Bush administration's financial rescue plan was a product of the waning influence of a lame-duck president and the nervousness of members of Congress, whose institution is even less popular and who faced a flood of angry messages from constituents. Senators McCain and Obama are more popular, but neither candidate embraced the bail-out measure enthusiastically before the vote.
Their cautiousness, combined with the unpopularity of other senior political leaders, left rank-and-file members of Congress free to draw their own conclusions about how to react to public scepticism, just five weeks before election day.
"We're all worried about losing our jobs," Republican representative Paul Ryan, who voted in favour, said in a speech in the House. "Most of us say, 'I want this thing to pass, but I want you to vote for it — not me.' "
The rescue plan, which would have allowed the Treasury to spend as much as $US700 billion ($A866 billion) to buy distressed investments from troubled financial institutions, was always going to be a hard sell.
No grassroots constituency supported the idea. Instead, conservative Republicans protested the bill as a federal intrusion in private enterprise, while liberal Democrats complained that it rescued wealthy investors but didn't give home owners a refuge in bankruptcy to avoid foreclosure.
Members of Congress were flooded with messages from voters urging them to vote no. In the final hours before the vote, AFL-CIO President John Sweeney, who is bankrolling campaigns to assist Democratic candidates, condemned the plan. Influential conservative groups such as the Club for Growth and FreedomWorks called for its defeat.
Paradoxically, though, many House members who voted no came from safe districts — districts in which voters are overwhelmingly conservative or liberal. That's partly because, over years of redistricting, many House districts have become polarised, and members from those districts have less incentive to compromise.
"They don't face any backlash to this vote," congressional scholar Norman J. Ornstein said. "Their constituents will say, 'Right on.' "
Since at least 1990, when Newt Gingrich, then a Georgia congressman, led a conservative revolt against a budget plan sponsored by fellow Republican and former president George H. W. Bush, bipartisan compromise has been rare in the House. Instead, Republicans and Democrats have focused on sharpening their conflicts, each hoping to push the other out of power.
"When you're counting on the minority party (to help pass a bill), that's difficult," said John Feehery, a former top Republican aide. "The minority doesn't trust the majority. They don't want to help them out."
Pleas from a president might not work, either — especially if the president's public standing has fallen to record lows. White House spokesmen said President Bush called dozens of GOP members of Congress, but his efforts appeared to bear little fruit. Joe Barton, a Texas Republican, said the president called him, but the lawmaker explained that he preferred to listen to his constituents.
In such a situation, even a powerful Vice-President such as Mr Cheney no longer can command votes from House members. Nor did Republican members appear to pay much heed to their presidential nominee.
Over the weekend, aides said, McCain spoke to at least 11 House members to try to help round up votes. On Monday morning, he told a rally in Ohio that his intervention had helped improve the expected deal.
Of the 11 lawmakers the McCain campaign said the nominee talked to on Sunday, seven voted for the measure, although five of those were members of the House GOP leadership. Four, including two from Arizona, did not.
The voices of angry constituents seemed to count most. "When Congress' approval rating is so low, when the president is such a lame duck, and when your constituents are calling … you run," Feehery said.
LOS ANGELES TIMES
Blood on the streets
The Age, October 1, 2008
In America, Main Street has turned on a struggling Wall Street - with the politicians helping pull the trigger. By Nils Pratley and Steve Pearlstein.
IT WAS a bad plan - but it was a plan. The refusal of Congress to back Treasury Secretary Hank Paulson's bail-out takes the US into new territory. George Bush told Americans to expect "a serious financial crisis" and "a long and painful recession" if the legislation was blocked. Paulson went down on his knees to beg for support. But opposition from ordinary Americans killed the bill.
Some horsetrading in Washington may yet produce a revised deal that would be acceptable to the politicians, but the banks know there will be no easy handouts: Main Street, for better or worse, wants to see Wall Street suffer. In an election year, voters get what they want.
But Americans have failed to understand that they are facing the real prospect of a decade of little or no economic growth because of the bursting of a credit bubble that they helped create and that now threatens to bring down the global financial system. And politicians are worried less about preventing a financial meltdown than about ideology, partisan posturing and teaching people a lesson.
Financiers, in the meantime, have yet to own up publicly to their own greed, arrogance and incompetence.
In the coming weeks and months, all of these people will come to understand how deep the hole really is and how we're all in it together.
They'll come to understand that the giant sucking sound they hear is of a massive deleveraging of the global economy and the global financial system as households and governments, businesses and investment funds adjust to living in a world with less debt and more inflation.
And they will come around, reluctantly, to the understanding that the only way to get out of these situations is to have governments all around the world borrow gobs of money and effectively nationalise large swathes of the financial system so it can be restructured, recapitalised, reformed and returned to private ownership once the crisis has passed and the economy has gotten back on its feet.
The immediate challenge for the central banks is simply to keep the banking system functioning - ensuring that payments are processed and that companies can continue to pay everyday bills, such as wages. The will have to step up their efforts to maintain liquidity in money markets and prevent the credit crunch from taking down hedge funds, businesses, and state and local governments.
The Federal Reserve will flood the market with emergency funds. The sums were already staggering. Before the vote in Congress yesterday the Fed released $US620 billion. The number may get bigger in the next few days. It's a case of using "all tools available", as the Treasury put it. These could also include emergency cuts in interest rates, as we saw after 9/11.
Even so, more bank collapses and takeovers look almost inevitable.
Money is flowing towards perceived safe havens at alarming speed. Ever since Paulson announced his plan 10 days ago, two of the biggest US commercial banks have been taken over and their shareholders wiped out; the British Government has nationalised home lender Bradford & Bingley; Fortis, Belgium's biggest bank, has been partly nationalised; and the crisis has spread into major institutions in Germany and Iceland. All that happened while the Paulson plan looked likely to be passed in some form.
In Washington politicians, if they are serious about finding a new bail-out model, will have to recognise the reasons why the last one failed.
Paulson and Bush misjudged the mood of the US. Paulson asked for authority to spend $US700 billion with no outside scrutiny, and offered Congress few details on how the cash would be spent. What prices would the Treasury pay? Paulson couldn't say, and no amount of muttering about "reverse auctions" could shift the perception that the taxpayer would be fleeced. His original proposal ran to just three pages. Bush's address to the nation lasted only 12 minutes. The voters saw arrogance - and they let their representatives know it.
This was a piece of legislation that had the full backing of the Republican leadership but it was rejected by its own rank-and-file politicians. America's right is sick and tired of what it sees as the hypocrisy shown by the Bush Administration and Wall Street leaders in this credit crisis.
The vote reflects a simple homespun philosophy, taught on verandas across the nation for generations. Just as with any right, the right to freedom comes with responsibility. But Wall Street is seen as trying to shun its responsibilities and that is what is angering so many Republicans on Capitol Hill.
But if the continuing economic meltdown forces Congress' hand, what form could a revised bill take? There would clearly have to be greater scrutiny of the Treasury's operation and tougher curbs on executive pay. But the markets will be concerned that the size of the bail-out will also be reduced.
Even before yesterday, $US700 billion had come to be seen in some quarters as too little. Worse, economists had started to question Paulson's approach to the problem. Many argued that buying distressed assets would not improve banks' basic problem that too little capital is supporting too much lending.
So a revised plan might mean offering capital to banks. In practice, that might involve the US Government taking stakes in financial institutions as a means of protecting taxpayers. Citigroup, in buying Wachovia yesterday, agreed to give $12 billion of preference shares to the banking regulator as part of a loss-sharing arrangement.
Restoring real stability to financial markets will, therefore, require the kind of systemic approach and extraordinary government interventions that the public has refused to authorise and finance.
In better times, the public might have put aside its reluctance in response to the strong and unified recommendation of political and business leaders. But it is a measure of how little trust remains in Washington and Wall Street that voters are willing to risk a hit to their wealth and income rather than follow their lead.
Agencies
http://www.theage.com.au/world/blood-on-the-streets-20080930-4r62.html?page=-1