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WORLD> Govt Reaction
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Wall Street crisis: another inconvenient truth, the vote
By Xin Lian (Chinadaily.com.cn)
Updated: 2008-11-28 11:41 As "yes" and "no" votes took the lead alternately, stock index and market mood went on a roller-coaster ride. The remaining dozens of votes became critical. The fluctuating index echoed a warning to the lawmakers to make the right choice. "No" votes were growing faster. The fear of being ousted led to more "no" votes. It was tragic to go against one's reason in such a pivotal vote. But lawmakers had to appease the public. At 13：45 pm, the bill was rejected: the final count was 228 against vs. 205 for. It was indeed a "prime showcase" of the American democracy. 15 minutes before the result came out, stock markets had tumbled and traders had sold out their holdings. A handful of hard-core opponents were smugly celebrating their victory, yet the rest were moaning. Paulson went blank, totally beaten by the unexpected defeat. Shares of Goldman Sachs and Morgan Stanley dropped as much as 13% and 15% respectively. People believed that the investment bankers-turned Treasury staff would use the money to bailout their former employers. But it seemed that Paulson just couldn't sell his scheme. 40 democratic representatives, 60% of the House Democrats, voted for the bill. 65 Republicans voted against it, accounting for one third of the total House Republicans. Ironically for a President who supported Paulson, it was his allies who killed Paulson's deal. The vote was followed by finger-pointing and buck-passing. According to Bloomberg, House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said, "I'm disappointed because the Republicans killed this." Republicans blamed Democratic House Speaker Nancy Pelosi for her bipartisan statement before the vote. Media spread the news to every corner. The struggling Wall Street sank further. The Dow Jones fell 777.68 points. The Standard & Poor's 500 Index fell 8.77%, the largest drop since1987. The NASDAQ finished down 9%. As for the index futures, the Standard & Poor's 500 index dropped 3.5, Dow Jones Industrial Average down 40 and NASDAQ 100 down 3.2. The benchmark VIX index, a measure of market volatility, closed at a 28-year high. Shock wave was shortly sent across the world. Opponents of the bill were cheering their victory. That night Bob and Bill, two blue collar workers in Arizona went to a bar to celebrate. Both of them had called the State Senate Office to assail the plan. "We know nothing about sub-prime mortgages. Investment banks and credit crunch have nothing to do with us. Don't ever think of robbing us to pay the Wall Street bastards." When Bob and Bill knew their senator voted against the bill, they called his office to express appreciation. After a few shots, Bob tried to pay with his credit card as usual. But it did not work. The bar owner said impatiently, "Hey buddy, I am afraid you have to pay cash." "Why? There has never been anything wrong with my credit card," Bob roared, sounding a little bit drunk. "Who knows. Banks may have lowered the credit on card accounts when they knew they would get nothing from the Congress," said the owner. Bob and Bill stared at each other blankly. "Damn it! I was planning to buy Betty a bike for her birthday next week," raged Bob. If the owner was right, Bob and Bill were stewed in their own juice. They, like the general public, were not aware that the basis for their spending pattern was being ruined by the ongoing financial meltdown. The escalating crisis ravaged capital, money and credit markets. Cash depletion was suffocating the financial system, and impacting the real economy and the daily life of average Americans. "They made our lives a mess, Bill", Bob said gloomily. "Maybe we should call the Senate Office again and see if they can make some change." The public was thus held hostage by Wall Street to get a consensus for bailout. Meanwhile, Paulson did not stay put. His believes in never recoiling from difficulty. Two days later, after doing hard trade-offs, he presented a 400-page new version to the lawmakers. Stunned by the market response, Senate leaders took up the bill. This time, they did not choose to vote at the opening of the market, for fear the result would be too much for the already fragile market. Warren Buffett told CNBC that the US$ 700 billion rescue package aimed at bailing out the American economy rather than the Wall Street. He knew that the crisis was already ravaging the real economy. The looming calamity forced lawmakers to broker a deal. Later that day, Senate passed the therapy by a vote of 74 to 25. Add-ons of the new version included a higher ceiling of deposit insurance, discretion of the SEC to retool fair value accounting, and a $150.5 billion cut of personal and corporate taxes. The senate revitalized Paulson's rescue package, which was desperately needed by the market. October 3, the House voted again. Some representatives announced that they would switch to vote for the bill. The expanded version gave lawmakers some leeway from voters' pressure. The escalating financial meltdown, the failure of banks and financial institutions, the growing jobless rate, and inconveniences in their daily lives brought home to Americans that they had to pay a cost to secure their future. At the end of the day, the package passed with 263 to 171. "The battered market increased political risk. Those continuing to oppose the bill were accused of placing personal career over national interests. That would be bad for their re-election campaign in November. Therefore, they grabbed the opportunity on October 3 to redeem themselves," some politicians said. However, the New York stock market did not rebound as expected. The Dow Jones finished with a loss of 157 points, a 1.5% drop. Both Standard & Poor's 500 Index and NASDAQ fell more than 1%. According to Simon Johnson, former chief economist at the IMF, the US was entering, even with the most optimistic wording, a major recession. In relation to the hemorrhaging economy, the US$ 700 billion package was nothing more than a band-aid. That obviously fell short of what Paulson had fought hard for. Obama and McCain voted in favor of the bill at the senate. They were unwilling to admit its negative impact on their campaign, but everyone was wondering how could the next president and Congress address the expanding deficit? Paulson had more immediate concerns to address. With a devastated Wall Street, the demanding public, and the cynical opponents, he needed to set priorities for the USD-700-billion spending. Could the belated legislation turn the tide? |
