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The Reason the Bailout Didn’t Pass the House

September 29, 2008

Perhaps you have read the full manuscript of the $700,000,000,000 bailout bill that failed today in the House of Representatives. More likely you haven’t. It will probably bore you, but since it would be the largest bill of its kind ever in American History, you should read it. You can find it here.

I took a couple of hours and read it last night. Immediately I had some serious reservations about it. I wonder if the members of the House who voted against it shared my concerns.

Other than for reasons of Partisan Politics, here is why I believe it was voted down:

1. There were no provisions that required banks and other financial institutions to loan out the money they receive for their bad debts to the average consumer. In all likelihood, they would use the  money on the Secondary markets and hope that the effect trickles down to the average person. Because there is no requirement that the money be used to help the average borrower, this is a flawed document.

2. The money could be used to bail out foreign banks as well as American ones. The reason for this should be obvious if you have followed the travails of our National Debt. When a country is in debt, it must sell some kind of debt instrument to those who have money to lend. For the last decade, the people lending America money have often come from other countries. If we allowed banks in other countries to begin to go under, they might be tempted to sell their Treasury Bills, thereby driving down their value. This would mean that we would have more trouble borrowing to create more debt. That is why the foreign banks are also mentioned in the document.

3. The Oversight Committee, which will be the Watchdog for all of this money being spent, will be chaired by the Secretary of the Treasury. Since he is the one who will also be spending the money, it seems to be a watchdog without many teeth.

4. As I said in my last article, there is no guarantee this will help the markets. At the same time, there is no guarantee that allowing banks to fail is harmful to the economy in the long-term. In Japan in 1999, there were 34 banks in existence when their bank failure started. By 2008, there are four very strong banks in Japan and they are much better regulated. There are a number of economists who say that bailing out the corporate giants right now might postpone their inevitable collapses and make those failures even more devastating in the future. For this reason, many members of Congress are hesitating taking a move that may not have any more effect than the President’s Rebate checks had in May.

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4 comments

  1. Something was very wrong with this bill since both side of the isle didn’t vote to pass it. Dems have the votes to pass it but 40% of them voted no. So for Pelosi to say it was the Repub that defeated this is untrue. This is not just failure on the part of this administration, but it reaches back to the last several Presidents and their administration.

    The market may be down 777 points today, but since Black Monday in 1987, the stock market today is still up 400% more today then it was in 1987.


  2. Anon, you are so correct. Obviously partisan politics always play some role in a vote of this historical magnitude, but the bill itself was severely flawed and only those who were willing to close their eyes and embrace the panic could sign it.


  3. You have just gone way up on my scale of impressive by spending the time to sit down and actually read this bill. You also knew how many zeroes that 700 billion had, and that’s pretty cool too! Thanks for the link, I’m going to sit and take a look at this “bailout” plan too. I agree with your comments that you posted. We need to continue to bring our leaders before the Lord and intercede for them to govern with wisdom-lots and lots of wisdom.


  4. Thanks Jeremiah. That certainly is the right approach to this problem. Intercession might stave off the dilemma of knee-jerk, fear-centered reactions to the money markets.



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