
$700bn Bailout is shot down by House of Rep Vote (205-228), US stock market plummets - kirse
http://www.msnbc.msn.com/id/26884523/
======
yummyfajitas
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".

~~~
samwise
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.

~~~
jodrellblank
It doesn't still exist - it never existed in the first place.

~~~
jcromartie
Someone said (I think it was in Money as Debt[1]) that "if all debt was
cancelled, 95% of the money in the world would _disappear_ instantly."

[1] <http://video.google.com/videoplay?docid=-9050474362583451279>

------
cellis
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!

~~~
natrius
If those financial institutions fail, they will have to be nationalized.
Taxpayers will lose far more than $700 billion. The only way your
characterization of the bailout as a net transfer of wealth is tenable is if
you're against government intervention in financial crises altogether, which
is silly. Unless you also think fractional reserve banking should be illegal,
which is also silly.

~~~
jodrellblank
Why is it silly to make conjouring money out of nowhere illegal?

If there is only $100 in the world, and a bank gives it to you and you pay it
back with interest, where does the interest come from?

If there's $100 in the world, and a bank "gives $100" to 10 people, who all
have to pay back $100 + interest, where does that come from?

You have to borrow it from another bank. Total money in the world increases,
the economy grows, but it's a con, a mirage, a convenient consensual fiction.
A system based on eternal growth, which relies on pushing around ever
increasing debt for its very existence, where repaying the total debt would
require giving the banks back all the money they ever loaned plus all the
stuff in the world to the value of the conjured extra. How is this not silly?

~~~
natrius
"If there's $100 in the world, and a bank "gives $100" to 10 people, who all
have to pay back $100 + interest, where does that come from?"

That's not how fractional reserve banking works. Banks don't lend more than
they have in their vaults, they just have less in their vaults than the sum of
their depositors' accounts.

That's tangential to your main point, which seems to be an objection to a
perpetually increasing amount of money that only exists as numbers in a
computer backed by nothing. That only becomes a problem in a severe recession,
where the rate of wealth creation slows so much that loans can't be paid back.
The system breaks, and governments have to intervene to fix it. This isn't
done by just giving banks money, as you suggest. The government typically
takes over the banks. The proposed bailout involves buying assets, but it's
still not giving banks money.

That is only a problem if you think we'd be better off with the slower
economic growth that would result from banning fractional reserve banking.
We're not. A system that breaks on a regular basis sounds like a bad idea, but
you still have to compare it with the alternative before you condemn it.

~~~
m_eiman
One alternative: <http://en.wikipedia.org/wiki/JAK_members_bank>

Basically: money lent is less or equal to money deposited; no interest (only
fees). Interest including fees is ~2.5%, and will "never" change.

~~~
huherto
Interesting link. Do do you think the financial system could be replaced by
that?

~~~
m_eiman
Sure, but it would be different from the one we have now. Things might be
moving slower, but crashes should be less frequent.

The main difference is that that system isn't built on the assumption that the
economy will always expand, which the current system is. I'll leave it to
someone who actually knows something about the pros and cons of each to tell
you if that's good or bad.. But basic reasoning tells me that it's not likely
that something that takes place in a fixed environment (Earth) can expand for
ever.

------
briansmith
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.

~~~
tlrobinson
And while it's the biggest single day _point_ loss, it's not even in the top
10 _percentage_ losses.

~~~
kirse
Not to mention the majority of it bounced back the next day.

------
soundsop
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/23k...](http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html)).
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?

~~~
krschultz
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
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.

------
cbrinker
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.

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

------
railsjedi
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
8K would be a reasonable valuation.

~~~
fallentimes
Based on what? Historical P/E FCF valuations?

~~~
railsjedi
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
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
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.

------
tlrobinson
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.

~~~
soundsop
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/23k...](http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html).
The $700 billion figure is about 5% of US GDP.

------
Harkins
[http://projects.washingtonpost.com/congress/110/house/2/vote...](http://projects.washingtonpost.com/congress/110/house/2/votes/674/)

If you're interested in how specific Representatives voted, we (I work at the
Post) grabbed the data before house.gov keerashed.

~~~
SwellJoe
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
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.

~~~
SwellJoe
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.

~~~
arockwell
The bill is quite a bit toned down from how you described it (afaik). You're
talking about the initial version of it, which I thought was absolutely
horrible. The version that was voted on today seemed quite a bit better (more
oversight, some limits on executive pay, not all the money is paid out at once
among other provisions...), but I just think that the core of the bill is
simply not a good idea.

~~~
chaostheory
oversight by 2 small committees who can be bought isn't enough oversight - all
transactions need to be made available to the public.

Not to mention that while payments would be made in installments, there was
still no cap.

~~~
arockwell
Thanks, I wasn't too aware of exactly what had changed. I didn't realize that
the transactions would not be made available to the public, that seems insane.

------
msg
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
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
true

------
wd40
and the dollar surges! (re: biggest dollar gains in 15 years)

~~~
dougp
where do you see this I'd like it to be true.

~~~
wd40
[http://business.timesonline.co.uk/tol/business/markets/artic...](http://business.timesonline.co.uk/tol/business/markets/article4844255.ece)
"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."

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

------
MaysonL
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
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.

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

------
patrickg-zill
You cannot fix a structural defect with wallpaper.

------
quasimojo
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

~~~
jeremytliles
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
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://econlog.econlib.org/>

<http://www.marginalrevolution.com/>

<http://www.economist.com/blogs/freeexchange/>

<http://economix.blogs.nytimes.com/>

<http://delong.typepad.com/>

[http://www.ft.com/cms/s/0/290ca9f6-8d8b-11dd-83d5-0000779fd1...](http://www.ft.com/cms/s/0/290ca9f6-8d8b-11dd-83d5-0000779fd18c.html)

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
That's a great analogy.

There's a brick wall looming up ahead, and we just cut the line to the brakes.

~~~
kingkongrevenge
Pumping in a huge amount of government debt and credit is hitting the
accelerator, not hitting the brakes. Cheap credit is the fuel that produced
the mess.

~~~
davidw
This is precisely the sort of "I know exactly what's going on" comment that
I'm suspicious of. Perhaps you do, but I am in a "don't trust anyone" sort of
mood, I suppose.

~~~
kingkongrevenge
If feelings of mistrust are your guide then it should be obvious that the
bailout is an evil racket. Cui bono?

Outstanding consumer and business debt is something like $40 trillion. Way
more than $700 billion of it is at risk. The bailout bill is so small relative
to the real credit markets that it can ONLY possibly be a political act for
certain well connected individuals. It cannot drive the macroeconomic
conditions related to the whole credit market.

~~~
davidw
"certain well connected individuals"

Sounds like conspiracy theory territory to me, but maybe I'm misconstruing
what you're saying. On the surface, your argument regarding 700 billion vs 40
trillion sounds plausible, but then again, it doesn't seem to be convincing
guys like Larry Summers, Mark Thoma, or The Economist (
[http://www.economist.com/world/unitedstates/displayStory.cfm...](http://www.economist.com/world/unitedstates/displayStory.cfm?story_id=12326538)
), and I don't think they're all in on the plot, yet are pretty smart.

On the other hand, if things don't go to hell without the bailout, it will
show that Paulson et al. were indeed quite wrong.

~~~
kingkongrevenge
There is a simple, good test for smartness in the current climate: Who
identified and coherently described the housing bubble in 2005 or before? I
think everyone on your list fails the test.

~~~
davidw
After a quick search in The Economist's archives:

[http://www.economist.com/finance/displaystory.cfm?story_id=E...](http://www.economist.com/finance/displaystory.cfm?story_id=E1_QPRVNJP)

> The technology bubble in the late 1990s at least left behind a modern
> capital stock, which continues to yield productivity gains; a property boom,
> in contrast, does nothing to boost long-term growth. Instead, it diverts
> resources away from more productive sectors and by fuelling consumer
> spending it exacerbates America's economic imbalances. Eventually, there
> will be a price to pay.

Also, I'm not sure that predictions of problems equate to knowing what to do
to best wind down the current mess. You're right (elsewhere) that some things
need to go under. However, I think the point of the 'bailout proponents' is
that more will go under than otherwise needs be without it.

Of course I guess we'll really never know for certain in any case, as it's
impossible to know what would have happened otherwise. We could have no
bailout and massive failures just as we could have a bailout and still have
massive failures. Or no massive failures in either case.

~~~
kingkongrevenge
> I think the point of the 'bailout proponents' is that more will go under
> than otherwise needs be without it.

I've seen this movie before. If bailouts and stimulus packages worked Japan
would have been the economic star of the 1990s and the Depression would have
ended before FDR ran for the nomination.

~~~
davidw
Japan didn't do "bailouts", from what I've read. More along the lines of
simply never facing up to the bad debts and letting some things fail. That
certainly has to be part of it, and has been so far.

------
TweedHeads
Where can we see how they voted?

I want to keep an eye on those 205 SOBs

~~~
furiouslol
<http://clerk.house.gov/evs/2008/roll674.xml>

------
ctkrohn
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
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.

