Bush Enacts Historic Financial Rescue
Saturday, October 4, 2008
With evidence mounting that the nation faces a sharp economic downturn, Congress yesterday gave final approval to what may be the biggest government bailout in American history, authorizing the Bush administration to spend $700 billion to try to thaw frozen credit markets and prevent a deep recession.
Prodded in part by calls from fearful constituents reporting an alarming drop in their ability to borrow money, the House voted by a wide margin to reverse its earlier defeat of the measure and send it on to the White House. Many lawmakers were swayed by revisions to the bill that offer fresh cash for disaster assistance and extend an array of tax breaks for families and businesses worth an additional $107 billion over the next 10 years.
In an unusual display of urgency, President Bush signed the bill less than two hours later, and Treasury Secretary Henry M. Paulson Jr. said he plans to start spending the money within weeks. The measure gives Paulson expansive powers -- unprecedented outside of wartime -- to intervene in financial markets by relieving faltering firms of distressed assets backed by home mortgages, which are falling into foreclosure at record rates.
Experts said the plan might not be enough to offset widening problems with the overall economy. The Dow Jones industrial average dropped 157.47 points yesterday, or 1.5 percent, despite the measure's passage, and gloom lingered over credit markets. The market for short-term credit remained essentially frozen, making it difficult for money-market funds to meet investors' demands and threatening the ability of small businesses, giant corporations, universities and state and local governments to obtain money for day-to-day operations.
Many financial experts warned that the Treasury may soon need to provide short-term financing to companies other than banks.
Meanwhile, there were fresh signs that the credit crisis is taking a toll on the global economy. Yesterday, the Labor Department reported that the nation shed 159,000 jobs in September, the ninth straight month of job loss. In England, the auto industry cut back to a four-day week in response to falling sales. And the leaders of Britain, France, Italy and Germany plan to meet today to discuss the spreading crisis.
In a statement at the White House, Bush praised congressional leaders for quick action on a measure he has described as essential to averting broad economic collapse. "By coming together on this legislation, we have acted boldly to prevent the crisis on Wall Street from becoming a crisis in communities across our country," Bush said before leaving the White House for his Texas ranch.
Bush acknowledged that many people "have concerns about this legislation, especially about the government's role and the bill's cost." He also conceded that the measure is no magic bullet, and that "it will take some time for this legislation to have its full impact on our economy," which "continues to face serious challenges."
Among the measure's benefits, Bush cited a provision critical to attracting support from House Republicans: a new federal insurance program, funded by the banks, that would cover bad assets. The program would require actuaries to set a value for those assets based on historic mortgage failure rates. The firms would then pay a premium for insurance that guarantees a floor value for those assets, permitting them to be bought and sold.
But House Financial Services Committee Chairman Barney Frank (D-Mass.), who led negotiations with Paulson, said yesterday that the insurance program is unlikely to be implemented because it would do little to restore liquidity to cash-starved banks.
"No one expects it ever to materialize, including the Secretary of the Treasury," Frank said.
Rob Collins, a spokesman for Rep. Eric Cantor (R-Va.), the provision's author, retorted: "Barney Frank needs to read the bill. It's mandatory."