3 October 2008

Bailout bill passes

The following is excerpted from the 3 October 2008 edition of “globeandmail.com”.

With the U.S. economy on the brink and elections looming, Congress approved an unprecedented $700-billion (U.S.) government bailout of the battered financial industry on Friday and sent it to President George W. Bush who quickly signed it.

“We have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country,” Mr. Bush said shortly after the vote, although he conceded, “our economy continues to face serious challenges.”

The final vote, 263-171 in the House of Representatives, capped two weeks of tumult in Congress and on Wall Street, punctuated by daily warnings that the country confronted the gravest economic crisis since the Great Depression if lawmakers failed to act. There were 58 more votes for the measure than an earlier version that failed on Monday…

At its core, the bill gives the Treasury Department $700-billion to purchase bad mortgage-related securities that are weighing down the balance sheets of institutions that hold them. The flow of credit in the U.S. economy has slowed, in some cases drying up, threatening the ability of businesses to conduct routine operations or expand, and adversely affecting consumers seeking financing for mortgages, cars and student loans. Some state governments have also experienced difficulty borrowing money.

The House vote marked a sharp change from Monday, when an earlier measure was sent down to defeat, largely at the hands of angry conservative Republicans…

Following Monday's vote, Senate leaders quickly took custody of the measure, adding on $110-billion in tax and spending provisions designed to attract additional support, then grafting on legislation mandating broader mental health coverage in the insurance industry...

In addition, the measure was changed to broaden the federal government's deposit insurance program, and the Securities and Exchange Commission loosened a regulation to ease the impact of the distressed assets on the balance sheet of financial institutions.

Despite occasionally strong criticism of the added spending and tax measures, the manoeuvre worked — augmented by a sudden switch in public opinion that occurred after the stock market took its largest-ever one-day dive on Monday…