The Bailout Bill
Because part of what (I hope) this blog accomplishes is explaining political situations in layman terms, I’m going to give a very brief overview of what, precisely, this $700 billion “Emergency Economic Stability” bill is. You know— the one that was voted down today, and which promptly induced the hugest fall in points the DOW stock market has ever seen. It’s critical to understand, even if all you grasp are the basics. So I’m axing the partisanship and punditry from this post, because some shit is simply too important.
Here you go:
On September 18th, Henry Paulson— the Secretary of the Treasury— requested a meeting with Congress. At the meeting, he explained that the economic situation in the United States is rapidly deteriorating, and that he doesn’t believe it will get any better without government intervention. In fact, he warned of extreme financial turmoil— a “crisis the likes of which we haven’t seen since pre-Depression”— if Congress did nothing.
But he didn’t just say, “do something” and then leave Congress high and dry without any ideas. He came to the meeting prepared with his own plan: a $700 billion bailout of the country’s most strained markets, including the mortgage, banking, and lending industries. The money would go to the Treasury, who would use it to pay for the debts of these industries by paying for the debts of individual firms: Washington Mutual, AIG, Wachovia, etc. But because the Treasury has no Constitutional or legal authority to do this, he also requested the power to administer this bailout. Therefore, his request was for $700 billion to save failing companies, along with the power to do so.
Most of Congress had huge scruples with this, not the least of which was with the fact that Paulson’s proposal would grant the Treasury unprecedented power. Plus, some argued, Congress had already bailed out many firms: Bear Stearns, the Automotive Industry, etc. They’d already granted roughly $100 billion to do this— why was so much more needed? Paulson explained that it’s because, this time, they weren’t aiming to bail out specific companies—though part of the monies would of course go to individual firms— but instead the aim now was to bail out the U.S. economy, purchasing entire industries wholesale. This still didn’t answer other questions, however— such as the concern over the power it would grant to the Treasury— so Congress dismissed Paulson and immediately set about revising his proposal to fit what they deemed to be an acceptable piece of legislation.
This is of course harder than it sounds— they have to get both the Democrats and Republicans to agree on what is “acceptable”— but nearly every member of Congress agreed that something had to be done, and soon, so cooperation was at an all-time high. Meetings were scheduled at the White House, with all the high-level Representatives and Senators in attendance. Including, of course, Obama and McCain. (This is when McCain “suspended” his campaign— to focus on these meetings, he said.)
After a few days of negotiations, President Bush and Congressional leadership had a new, revised version of Paulson’s proposal which they believed addressed the major concerns and was bipartisan enough to pass a vote. In brief, here is what the bill would have done:
The $700 billion would have been dispersed across the economy— primarily going to the mortgage and lending industries— namely to purchase the bad mortgages that have the housing market in a freeze. Which is the source of this economic turmoil: the poor housing market. So all the bad loans that were given out and that no one could afford, and that are therefore dragging the market down, would be bought out by the U.S. Treasury. Consider it this way: you take out a loan, but your lender increases the interest rate so high that you can no longer afford payments. You go bankrupt and have your house foreclosed upon. You’re a week away from starvation, and so to save you, the government swoops in and pays off your bad loan. Now, you’re free of debt and able to start rebuilding your life. That’s what this bill was trying to accomplish, only on a broad scale. A very broad scale, as in, the entire economy.
The idea is that, once free of debt, lending companies and banks would be able to start loaning money again. Then, once loans are again available, people will start taking them out to alleviate their personal finances. With their personal finances looking better, they’ll be able to afford more and therefore will buy more: gas, clothes, food, finished goods, you name it. Essentially, this would put money back into circulation, therefore stimulating the economy and dragging it out of the dumps. That was the bill. That was the plan.
Of course, the $700 billion needs to get paid for somehow, and the government’s bank account relies completely on taxes. And it would be utterly counterproductive to bail out the economy just to raise taxes— it would completely defeat the purpose of fixing Americans’ finances just to make them literally pay for it. So this begs the question: how do we pay for the $700 billion? Well, remember the bad mortgages/loans the government would be buying to free up the banks? They (the Treasury) are going to sit on it— for about 5 years— and resell them later, once the economy is back up and running (again, they predict in 5 years’ time).
Therefore, assuming the bill worked as planned and the Treasury could eventually resell the assets, we— the taxpayer— will break even, so no taxes need be raised. But just in case, the Treasury is also going to print off more money to cushion the whole affair.
To ensure this entire operation goes smoothly, the bill also called for two oversight boards, one of which is congressional (meaning, one of which contains members of Congress; the other is administrative, consisting of Paulson and other federal executives).
If, when reading that, you found yourself scratching your head and wondering “what the hell are they thinking?” then congratulations— you have a pulse. The bill is far from perfect, and as the only bit of commentary I’m going to do on it, WHAT are they thinking with this whole “we’ll just print more money!” provision? Are they mentally unstable? Seriously? That’s half the reason we’re in this mess to begin with, is unsound printing policies. But, no bill is perfect, and frankly, I was glad just to see Congress working together to accomplish something substantial.
But of course, the bill was voted on today, and didn’t pass. House Republicans shot it down.
In any case, there you have it. The best objective summary I’m able to give. If you’re still deathly interested, you can always read CNN’s abbreviated version: http://money.cnn.com/2008/09/28/news/economy/Sunday_talks_bailout/index.htm?cnn=yes
Lastly, I leave you with the greatest gift anyone can give: primary source information.
The actual “bailout bill” that was voted down today, in its entirety: http://i.cdn.turner.com/cnn/2008/images/09/28/ayo08c04_xml.pdf
The final tally for how the House of Representatives voted (including the names and direction of those who voted): http://i2.cdn.turner.com/cnn/2008/images/09/29/bailout.rollcall.0929.pdf
And lastly, for some perspective on how this bill’s failure to pass will affect the economy, a relatively objective analysis of the situation as it stands right now: http://edition.cnn.com/2008/BUSINESS/09/29/us.congress.bailout.deal/index.html
*sigh* That’s all I can do for you. I hope it proves useful. So in the words of the great Edward R. Murrow, “Good night, and good luck.”
/Elysa.
Debate… maybe?
EDIT: News has just broken that John McCain will participate in tonight’s debate.
What an interesting few days it has been. First $700 BILLION is proposed for our bailout plan, and now John McCain is playing hard-to-get in reference to tonight’s scheduled debate in Mississippi. As most will know well by now, the senator has said he will not participate in tonight’s debate unless a consensus is reached in Washington regarding a solution for the economic crisis. That’s not even the most annoying thing about the whole situation – McCain has vowed to suspend his campaign until the crisis is ironed out, and even called on Obama to suspend his as well.
Sorry, John, but we’re only weeks out from the election here – how the hell are people (especially undecided voters) supposed to learn anything about you in these last crucial weeks if you were to really suspend your campaign for any period of time? Furthermore, if you end up being President of the country, you’d better be used to dealing with multiple issues at once. There’s no reason you can’t show up for a debate, which the University of Mississippi has spent MILLIONS preparing for. Letterman is being a little bitch about McCain canceling his appearance, however, I might delicately point out that standing the country up is a bit more serious of a matter.
So, what does this all boil down to? McCain pulling a cheap ploy to look like a hero. “I’ll cancel a couple of appearances to go back to Washington to save the world.” But wait, there is an answer! Tina Fey – I mean… Sarah Palin, his VP! I mean, I know she doesn’t know what the VP does but I’m pretty sure the VP is supposed to stand in for the President when he is unable to complete his job.
Silly me, I forgot. Sarah Palin isn’t really there to break the glass ceiling – she’s there to serve as a pretty little mantle piece, to stand behind John McCain and smile and clap and make cute little jokes about being a hockey mom to her constituents. I’m not sure she’d know what to do if she were debating with Obama.
