washingtonpost.com
Bailout Bill: What's Next in Congress and on Wall Street

Lori Montgomery
Washington Post Economic Reporter
Tuesday, September 30, 2008 12:00 PM

Washington Post economic reporter Lori Montgomery was online Tuesday, Sept. 30 at noon ET to discuss the rejection of the modified Paulson Plan, the 777-point dive in the Dow Jones Industrial Average, and where both Congress and Wall Street go from here.

The transcript follows.

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Lori Montgomery: Hello, bailout fans. As Congress and the Bush administration scramble to figure out what to do next, I'm here to answer as many of your questions about this mess as I can. So let's get to it...

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Sallisaw, Okla.: So how long should I wait to pile Ma, Rose of Sharon, Ruthie, Winfield and the rest of the family into the jalopy and head to California to work picking peaches?

Lori Montgomery: This is an excellent question, and I wish I had an answer. When your credit card stops working, that's probably a good sign.

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Atlanta: In reading comments in The Post and Times, I am astonished at how many people are opposed to the bailout. I genuinely would like to know what types of jobs these people have, given that apparently they will not be jeopardized if the economy crashes. I live within my means and have no debt outside my mortgage that I've had for 15 years -- but if I lose my job, I will lose my house. It's that simple.

Lori Montgomery: I don't think the type of job people have is the issue. The issue is that many people either don't believe the Paulson/Bernanke hype that catastrophic economic failure is right around the corner or they don't think $700 billion for banks is the way to fix the problem. There are loads and loads of economists on both sides of the political spectrum who are pretty skeptical of this proposal.

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Athens, Ga.: I read three newspapers a day, plus your great paper online. I have a spouse who works in the treasury department of a Fortune 500 company. I still don't know exactly was we are so scared of, and I'll bet I'm not alone, which I think is part of the reason why this bill failed. I read about deleveraging, and I can't help thinking that, okay, so the banks will have to earn half what they used to. Oil companies and auto companies had to go through the same process a while back, and the world didn't end then. No one is explaining this crises -- they're just saying we are in trouble, but they can't explain why. Maybe this is the time to do so. Has anyone explained this to you reporters?

Lori Montgomery: This is exactly why the bill failed. No one has successfully explained to the public why this is necessary, and the public is calling Congress is droves to say "kill the bill." We reporters have not gotten any special super-secret briefing from Messrs. Paulson and Bernanke, so we know pretty much what you know: mortgages are failing, financial instruments backed by those mortgages are worthless or suspect, and the banks have stopped lending to each other -- an event that eventually could paralyze the real economy.

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Tampa, Fla.: I see the market is up today. How urgently to we need the rescue package? Is this an opportunity to take some time to get it right?

Lori Montgomery: That's what we're going to find out. A lot of lawmakers will be making that very argument if the market doesn't nosedive

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Washington: The entire Arizona House delegation voted against the bill. Doesn't McCain have good relationships with them?

Lori Montgomery: At the very least, you can assume that McCain doesn't have much clout with them. A bad sign for a guy who wants to be president.

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Silver Spring, Md.: What exactly is the money going to? Is it to provide capital to banks, to buy mortgage-backed securities, or what? Why not bail out the homeowners and property owners who can't make the payments? Shut down the foreclosures -- wouldn't that stop the problem?

Lori Montgomery: This is the argument liberal Democrats are making. Why give the money to banks and buy up their bad, mortgage-based assets? Why not give the money (in some form or other) to homeowners so the mortgage-based assets are fixed from the bottom? I think those in charge think that would take too long; Paulson and Bernanke have told lawmakers a crisis in the financial markets is imminent.

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Colorado Springs, Colo.: I'm retired and rely on investment income from my savings. I can't believe Democrats and Republicans would defeat this bill. It isn't perfect, and certainly has some negative aspects, but the risks to every average American are way too high. It won't solve the problem completely, but you never solve a problem by doing nothing. I heard there were angry constituents against the bill who contacted their representatives. Well, now I'm angry, and this is my first explicit expression.

Lori Montgomery: Call your congressman. He or she needs to hear it.

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Washington: Whatever the merits, the bailout deserved to be rejected on process alone. What has our country come to where the most important decisions are backroom deals between a couple of people? Only two hearings, zero consideration of alternatives (Paulson said as much in front of the Senate Banking Committee), no Committee process or votes? No ability to offer amendments on the floor, just a take-it-or-leave-it deal between Frank and Paulson? Where's the democracy in that?

Lori Montgomery: No comment needed.

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Fairfax County, Va.: Lori, I'm depressed. I live in a very strong Democratic district with an incumbent who unquestionably will be re-elected, and I am happy to say he voted for the bailout to save our collective economic future. So I tried to e-mail him to say great job, and the House e-mail links were overwhelmed all morning. You wait for several minutes, get to the next page, type in your message, and then it crashes. Finally, I just telephoned his office and left my comment that way.

After all this, can you believe it that the person taking my comment was surprised I was calling to praise my congressman? Apparently even a very liberal Democrat with a good safe seat is getting grief for voting yes. How can the bailout or rescue plan possibly succeed if that's the case? Or do you think this was a random experience I shouldn't extrapolate? I am losing heart in my fellow American voters. Thank you all so much for destroying my IRA.

Lori Montgomery: Lawmakers of all stripes are being inundated by people who don't want to spend $700 billion on Wall Street banks. Until the folks pushing this are able to clearly communicate the danger to jobs, college loans and, yes, your pension, the bill will be on shaky ground in the House.

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Bonifay, Fla.: Perhaps one of the biggest objections on Main Street is that the family that was either unqualified for the loan or is a spendthrift is helped, while John Q. Public takes the hit for lower home values, caused in part by the "bad" loans. If we were sure that each case would be considered individually, including the original loan application -- causing investment property, "liar loans," and most refinances to be excluded -- it might be more palatable. (Should I be bailed out if I put $100,000 on Big Brown to "show" in the Belmont? It looked like a safe bet before the race.)Also, limit the help to lowering the interest rate, not the debt, so the family helped is in the same boat with the rest of us. Suppose someone was faced with a $1,800 principal-and-interest payment at 10 percent after four years of a 30 year loan; lower the interest rate to 6 percent and that part of the payment becomes $1,266. In addition, affordable housing should be based, in part, on housing that is affordable. Zoning is a part of the problem here.

Lori Montgomery: That may be a problem, but it's not a problem with the bailout bill. The housing bill that passed Congress in July seeks to help individual homeowners by encouraging banks to write down their debt. The bailout bill sends $700 billion directly to financial institutions that own bad assets backed by the bad mortgages. There are some provisions for foreclosure avoidance, but they are pretty vague and give the Treasury Department lots of latitude.

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Austin, Texas: The American people do not trust the current government in power, and that seems to be a requirement to govern. Can this deal wait until we have elected a new government?

Lori Montgomery: Probably not. We'll see what the market does today and tomorrow.

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Washington: Why can't we have active oversight of the bailout process? I don't give money to anyone without knowing what they plan to do with it. It also ensures that they do what they said they were going to do. What is so hard about oversight?

Lori Montgomery: There are beaucoup oversight provisions in the measure, including an oversight board, an independent inspector general and regular audits by the Government Accountability Office. Plus, Treasury has to promulgate standards for using its new powers within 45 days of the bill's passage.

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Iowa: I don't know who is right about the bailout, but I do know our retirement funds are fast disappearing. We had hoped to start a small business after my husband retired, but now that probably won't happen because that money is gone. Who is right? Should there be a bailout or not?

Lori Montgomery: That is a very good question and is precisely what many lawmakers are asking.

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Florissant Valley, Mo.: Pardon my cynicism, Lori, but wouldn't you figure that more than a handful of the no votes, both Republican and Democrat, came from folks who want to be able to tell their constituents "I'm on your side -- I voted against this horrid bill." And don't you also bet that in two days the leadership will make microscopic changes to the package and will vote yes and save their country? Sort of the Kerry approach to sausage-making? Thanks.

Lori Montgomery: It's not clear whether they will make any changes to the bill. They only need 10 votes to pass it, and were close to getting them yesterday. I think it's more likely that they twist a few arms and bring the bill back to the floor, rather than risk destabilizing the Democratic/GOP/Paulson compromise

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Washington: If they haven't done it yet, why hasn't the SEC changed the strict mark-to-market rules under which banks have been operating for the past year or so? I understand that this authority was explicitly included in the failed bill; is there some question as to whether the SEC can change this rule?

Lori Montgomery: This authority was, in fact, included in the failed bill.

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Long Island, N.Y.: As someone who thought the bill was imperfect but needed to be passed, I wonder if it would be more appealing if the bill were divided up into smaller pieces -- say $300 billion now (wow, that's a big number) to see if it had a positive effect? If there was some measure of effectiveness as the bill was enacted, I think that could be somewhat more palatable to the electorate.

Lori Montgomery: Paulson has insisted that he needs the whole $700 billion to calm down those antsy markets.

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Reston, Va.: Last night, the media was reporting that angry constituents were largely responsible for the bill's defeat. They didn't actually quantify that statement, but I assume that those who voted against the bill said that was a reason for a "no" vote. It seems to me that the administration, and those who supported the bill, have done a miserable job at explaining why the credit crunch is such a serious issue, and how it affects all Americans. Would you agree?

Lori Montgomery: Just about everyone involved in this mess agrees, probably up to and including the White House.

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Austin, Texas: What is the likelihood that the bailout plan will indeed contain some measure of ownership, so that the government has a chance to recoup its "investment" some time down the road? Is this clause something that is causing a split between Democrats and Republicans? If so, why?

Lori Montgomery: The bill does contain a requirement that firms that take taxpayer money also hand over some stocks, so the treasury can profit if the company does. This issue seems to have been settled to the satisfaction of most people, though some conservatives don't like it. There are lots of reasons why various factions voted against the bill, but I think the overriding one is that it's a lot of money and they're not convinced that it's necessary.

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Lansdale, Pa.: It outrages me to hear so many, including Pennsylvania Rep. Patrick Murphy, act as if it is Congress' job to keep the Dow Jones Industrial Average from going down. Why don't they just pass a law that makes it illegal to sell a stock for less than you paid for it? Much blame is laid on irresponsible lenders and borrowers, and the victims are seen as those whose 401(k)s and investments are collapsing.

But aren't investors equally to blame in putting their money into instruments and stocks that they did not really understand? My 401(k) has an extremely conservative, low-interest, no-risk-to-capital option, which is where my money is. Do all 401(k) plans have this, or are there indeed people who are forced into the market or else have to opt out of a 401(k) plan?

Lori Montgomery: I'm not an expert on 401(k) plans, but it is a little unseemly to see the Congress of the United States responding to the whims of Wall Street investors.

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Rolla, Mo.: Yesterday my 401(k) lost more than four times what my family's liability would have been under the plan. Bailout to greedy bankers or not, I'd like to have that back.

Lori Montgomery: You and me both, Rolla...

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Wokingham, U.K.: The public already has incurred huge debts with AIG, etc., and over on our side of the Atlantic, Bradford and Bingley plus Fortis. These debts have to be paid, so taxes have to be raised or public expenditures severely cut. Yet campaigning candidates can't say this, so discussion becomes irrational. Or is that too pessimistic?

Lori Montgomery: It's not completely clear. In the case of AIG, the government practically owns the company, so if it returns to profitability, we come out okay. The same is true of the bailout: If the bad assets recover their value by the time we sell them, it's all good. However, the independent Congressional Budget Office concluded earlier this week that the bailout would be likely to cost the treasury some amount of money. Given the huge deficit/debt we're already running, some would argue it's long past time to raise taxes or cut spending.

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Central Massachusetts: Why are the Republicans taking most of the grief for the defeat (and I do think they should take some heat for it) when 95 Democrats also voted against it?

Lori Montgomery: Because 140 Democrats voted for the bill -- more than half, as Nancy Pelosi promised -- whereas the Republicans failed to live up to their end of the bargain, producing only 65 yes votes, about a third of the caucus. This was a bipartisan compromise. If the Democrats wanted to pass this bill on their own, it would look very much different and would include a number of provisions the GOP would not like to see.

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Princeton, N.J.: But the media has contributed to the misinformation with simplifications, exaggerations and a desire for controversy. For example, we always talk about the "$700 billion bailout," but it won't cost $700 billion, and it is a rescue of the economy, not a bailout of Wall Street.

Lori Montgomery: This is the rhetoric we are being encouraged to use, yes.

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Fairfax, Va.: What are other options for structuring a bailout, as proposed by liberals or conservatives?

Lori Montgomery: They run the gamut. Conservatives are pushing this idea of creating a government insurance program for bad assets that would be funded by the banks themselves. Liberals want to see more money directed at the homeowners whose failing mortgages are at the bottom of the problem.

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Gaithersburg, Md.: I'm still at work, my money's still in the bank (insured by FDIC), my home has heat and the stores are still open. What, exactly, is supposed to be on the verge of crashing?

Lori Montgomery: Credit. Banks already are reluctant to lend to each other, and I'm told you only can get a car loan if you've got an awesome credit score. If credit gets much tighter, businesses will have trouble operating and making payroll and you'll have trouble getting a college loan. The whole thing tips over from there.

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Minneapolis: While a bailout might help me (I still own a condo in Washington and my ARM is about to adjust), I am not really sure the it is a good idea. Let these banks fail, let the chips fall where they may. Granted, I may lose my condo if things get really bad and I can't make the payments, but buying it was probably the worst financial decision I ever could have made anyway. So I am prepared to live with that. I just don't trust the government to be looking out for my best interests -- I've been lied to too many times.

Lori Montgomery: This particular bailout is not likely to help you. The $700 billion would go to the banks that hold assets backed by your about-to-default mortgage.

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Arlington, Va.: This is how I heard an economist on TV explain the need of the bailout for the "average American" not facing foreclosure: He said that I need to worry about my neighbors foreclosing, because that will drive down the value of my property. At the risk of sounding too benighted, I'm not planning on selling my home soon, so the current assessment really doesn't bother me. But more importantly, isn't that a way of saying we need the bailout to maintain artificially high property values?

Lori Montgomery: Some people make that argument. But the opposing view is that record foreclosures already have destabilized the financial sector and choked off tax revenue to cities and states. If credit dries up, the effects would be far more widespread. So it's not just your property values that are the issue here.

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Anonymous: Mr. Paulson, formerly Goldman Sachs, will return to Wall Street soon. Is it really necessary to send a $700 billion check to Wall Street in order to make that possible?

Lori Montgomery: Paulson will be stepping down as Treasury Secretary in January, when the new administration takes over. I'm not sure the $700 billion has anything to do with his future career plans.

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Baltimore: One question. For those investors who have written in to your chat citing their losses -- have they lost principle? I was struck by the person saying they'd lost a quarter of their assets. Were they real assets, or paper profits they should have cashed in earlier if they were relying on that investment to a large degree? Seems to me that investing carries risks, and the casual investor (read 401(k) investor) doesn't seem to realize this.

Lori Montgomery: Anyone care to reply?

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Washington: I was thoroughly opposed to the bailout until I read Steven Pearlstein's column explaining that you can punish Wall Street or you can save the economy, but you can't do both. I'm still not thrilled with the idea, but at least I have a better feel for what's going on.

Lori Montgomery: That's why they gave Steve a Pulitzer.

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Washington: See I think that chatter from Gaithersburg is part of the problem ... and I don't mean that he or she is the problem. I mean part of the problem is that we don't get what the potential consequences of inaction are ... what is the next shoe to drop for those of us who have an affordable mortgage or rent, have a steady job (not in the financial markets), have a car, decreased our driving because of gas prices, etc.? That's what I think someone needs to step up and articulate. What happens next?

Lori Montgomery: If you believe the darkest scenarios, think October 1929. Markets crash, companies fail, jobs evaporate and soup lines start forming down the block.

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Rockville, Md.: I work for the federal government and my mortgage is an ARM indexed against one-year Treasuries. If this thing keeps dragging out longer, am I the winner?

Lori Montgomery: Oh, boy. That's one for Pearlstein's chat.

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Rockville, Md. "If credit gets much tighter, businesses will have trouble operating and making payroll and you'll have trouble getting a college loan." So let me get this right ... we may have to live within our means? No more plastic to buy a pair of shoes? We might actually have to pay cash for something? Novel concept.

Lori Montgomery: You sound like my dad.

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Palo Alto, Calif.: Rep. John Shadegg (R-Ariz.) wrote in USA Today that one critical measure that was missing from the bailout was an increase in the amount that the FDIC would insure for each consumer bank account. Can you give me some idea what percentage of bank accounts might actually have more than $100000 -- that is, what percentage of accounts would be placed at risk without such a measure? It seems pretty unusual -- even for higher-income people -- to keep that much around in liquid assets.

Lori Montgomery: I think the number is very small, if not nonexistent. But I don't know the answer.

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Rockville, Md.: In my mind, Rep. Pelosi was like the football player who started celebrating before he crossed the goal line. Not the best move.

Lori Montgomery: Many would agree. But give the lady a break: She was so exhausted she was practically incoherent.

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Silver Spring, Md.: So the solution to an addiction to easy credit is to borrow more money, and the solution to an addiction to oil is to drill for more! I've been battling alcoholism for 20 years, and to think I could have cured it with just one more beer! Silly me.

Lori Montgomery: Cheers!

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Greenbelt, Md.: Aren't we all glad we didn't decide to privatize Social Security?

Lori Montgomery: Amen to that. On the other hand, the old funding stream isn't looking so reliable either.

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Greenbelt, Md.: I have three questions that can be possible solutions too: Can a homeowner agree to reduce his home equity in order to avoid foreclosure? Can there be a option for a subprime homeowner who has zero equity in the house and is unable to make payments ... could the banks make him agree to be a tenant. Why aren't banks doing a good job of maintaining the homes they own? Most of the bank-owned properties are blights to the communities, and bring down neighboring homes' values. They should engage the local real estate agents to keep the houses in good condition, and should even consider renting through these agents.

Lori Montgomery: There has been talk about how to help banks better manage their rapidly growing portfolio of properties. But part of the problem is that banks are not yet making deals with delinquent homeowners and the government has yet to figure out a way to make them do it.

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Arlington, Va.: On Fox last evening, Newt Gingrich stated that the revision of a "mark-to-market" accounting policy to a "three-year rolling average" would bring back liquidity to the marketplace. The president could issue an executive order regarding this and it would not have to be legislated by the Congress. Is this true? Why hasn't this been considered?

Lori Montgomery: If Newt says it, it must be true. Seriously, mark-to-market is an issue that has rocketed to the fore in the past 48 hours, particularly among Republicans. My imperfect understanding is that the SEC could in fact allow banks to abandon mark-to-market, but that would relieve them of accounting rules that every other industry abides by and let them "lie about their value," according to my colleague, Binya Appelbaum, who covers the banking industry. The measure that failed yesterday would have created a study of mark-to-market and specifically would have permitted the SEC to suspend it for the financial sector.

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It seems pretty unusual -- even for higher-income people -- to keep that much around in liquid assets.: Companies that need to make payrolls keep that much on hand.

Lori Montgomery: There you go.

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Anonymous: "My 401(k) has an extremely conservative, low-interest, no-risk-to-capital option, which is where my money is." If everyone were this conservative, we'd have the decades long recession/stagflation that Japan went through after its boom of the 1980s. We need innovation, both financial and in the service and manufacturing industries, to have growth in our country -- and innovation requires risk. So my response to Lansdale, Pa., is: We don't all use a horse and buggy. Some of us want or need a hybrid car (an innovation) to get around. You're more than welcome to use your horse and buggy for as long as you'd like, but I'm going to stick with progress even if it means a few major repairs in the future.

Lori Montgomery: Giddyap.

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Why hasn't the SEC changed the strict mark-to-market rules: I understand how this will help in the very short run, but isn't this crazy in the not-so-very-short run? Think Enron.

Lori Montgomery: "Crazy" may be too strong a word. The bottom line is that I don't know, and I'm not sure anyone else does either. This is a bit of a Hail Mary pass cooked up by three smart guys who hope it works.

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Silver Spring, Md.: Why not spend $700 billion on creating jobs for people? My job has been shipped to India and I have not found another. The very least we can do if we give this money to banks is not allow them to offshore jobs. Otherwise more jobs will be shipped overseas, the rich will get richer and the poor poorer.

Lori Montgomery: A thought.

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Rogers City, Mich.: I may be a slow study, but where did all the money go in the first place? Is it in off-shore banks?

Lori Montgomery: The money disappeared in a big whoosh of rapidly deflating home values.

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Washington: If the bailout fails to ever pass, how will it affect attempts to take out student loans? Specifically, large student loans (at least $50,000) for graduate school?

Lori Montgomery: The most dire warnings tell us that it will make it much harder to take out loans of any kind.

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New York: Re: Paralyzing the economy, that's precisely what we don't really understand. Fewer startups? A larger percentage of foreclosures, or perhaps more mortgage workouts? Credit card companies? Some companies going private to escape Wall Street expectations? What is really going to happen? Thanks so much for the chat.

Lori Montgomery: Again, see "soup kitchens" above.

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Arlington, Va.: President Bush made some kind of disparaging remark yesterday about a group of approximately 200 non-Wall Street economists that criticized the bailout plan. What do the economists want to do in lieu of the bailout plan, and does their opinion matter in the least? The president has shown his disdain for scientists and experts in other fields throughout his presidency, so I'm guessing he won't change now.

Lori Montgomery: The truth is that the president has had very little to do with this. Hank Paulson and Ben Bernanke are the fathers of this plan.

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North Andover, Mass.: Aren't other industries (credit cards, auto loan/finance, automakers, farmers) in the wings waiting to see how this bailout turns out so they'll know which levers to pull when it's there turn to cry "rescue me from myself!"?

Lori Montgomery: Possibly. The automakers are already in line to get at least $25 million in government loans to help them retool for more fuel-efficient cars. But I don't think there's going to be much appetite on Capitol Hill for more bailouts if this one passes.

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Mt. Shasta, Calif.: Happily, I am about as far removed from Wall Street as you can be, but I'd like to know if anyone on Wall Street stands to gain from not having a bailout. In other words, were there any Wall Street types cheering the vote against this measure?

Lori Montgomery: It's certainly possible. Given the nearly 800-point drop in the market yesterday, I'm not sure who they'd be.

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Confused: I've been reading the papers and watching the news -- and I still don't see why a bailout bill is even on the table. I admittedly don't know a thing about finances. Can you please explain why this is even in discussion? I feel like the banks screwed up, and I didn't, so my tax dollars shouldn't be bailing them out and giving their CEOs millions.

Lori Montgomery: It's under discussion because half a dozen major Wall Street banks have failed and officials fear more are on the way. That's causing a panic in the markets and among lenders that officials fear will lead to a widespread collapse of the credit markets, which would undermine businesses, destroy jobs and put us back on that spiral down to soup lines I mentioned earlier.

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"Businesses will have trouble operating and making payroll": All size businesses use credit to finance their businesses -- it's not a matter of "living within their means." Plenty of manufacturers need to purchase inventory, parts, etc., using lines of credit to fund production -- especially as all businesses hold payments back for longer periods of times.

Lori Montgomery: rRght.

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Arlington, Va.: Why was trading not suspended yesterday?

Lori Montgomery: This is the second question I've gotten on this subject, and I'm afraid I don't know the answer. I was too busy watching the House vote tank.

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Lansdale, Pa.: Thanks to anonymous for a somewhat snarky defense of riskier investment. I have zero tolerance for risk, but I can somewhat appreciate where he or she is coming from. P.S.: When I cannot afford the price of feed anymore, at least I can eat my horse.

Lori Montgomery: Giddyap!

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Crystal City, Va.: If Congress has this much trouble passing a short-term bailout plan, just imagine what will happen when SS starts cashing more than 60 years of IOUs to pay for a growing population of retirees. Now that will be better than a combination food fight and pro-wrestling chain match!

Lori Montgomery: OMG. And it's coming, baby!

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Princeton, N.J.: Why are the Republicans so against letting bankruptcy judges redo mortgages? It seems to me that that is the cheapest way to get the smallest amount of money to just those who need it. And the judges could stick it to speculators.

Lori Montgomery: It does seem to make sense. The mortgage industry argues that it would raise interest rates on primary mortgages, but many many people find that argument unpersuasive.

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Washington: This makes my head hurt. Having lived through Black Monday, the dot-com bust and now this, what provisions are in the bill to ensure that my retirement portfolio won't be in recovery every 10 years?

Lori Montgomery: Um, none.

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Alexandria, Va.: The Illinois Democrat delegation didn't vote for the bill either ... what does this say about Obama? He said a plan needed to be done, and they did not follow him in droves within his state.

Lori Montgomery: They split half and half, and not all of them are Democrats.

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Amherst, N.H.: Anyone hearing any specific points from the Republicans who voted against the bill? I haven't. How does negotiation occur if one party refuses to cite specific issues?

Lori Montgomery: The GOP, like liberal Democrats, cite many many problems with the bill. The problem is that no one wants to undermine the compromise congressional leaders cut with the Bush administration, so it's tough to do this through horse-trading.

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New York: Perhaps you can help clarify the genesis of how we got here. I understand the issues with subprime mortgages, the credit swaps, the huge amount of liquidity in the world looking for a safe investment, etc. What I don't understand is the effect of the repeal of Glass Steagall Act and Phil Gramm deregulation. I am reading that it was pushed though by Democrats in order to foster minority home-ownership, and that that is a primary reason for the credit crisis -- people bought what they couldn't afford. Sorry if this is a long question requiring a long, complex answer.

Lori Montgomery: The primary reason for the credit crisis is indeed people buying things they can't afford. But I don't think you can lay that solely at the feet of Democrats or Republicans.

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Fort Lauderdale, Fla.: Americans can't support something that bails out Wall Street, but leaves us without the proverbial pot. I don't believe Congress will come back after the election and fix anything. Get it done right this time (with more for homeowners) or leave the market to sort itself out.

Lori Montgomery: I think there's a 60-40 change that Congress will pass this thing before the week is out.

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Anonymous: President Bush, Secretary Paulson and Federal Reserve Chair Bernanke all painted a pretty grim picture of what will happen if there is no bailout. The Congress didn't buy it, so the bill failed to pass. However, the Streets (Wall and Main) seem to have bought their argument -- hence the markets tanked. How do the big three named above convince the politicians without scaring the investors?

Lori Montgomery: Some lawmakers already are starting to hear from local bankers, developers and business owners that they're beginning to feel the burn from the credit crisis. Someone needs to deliver a more colloquial message, but Paulson and Bernanke seem constitutionally incapable of doing it. Their testimony to Congress in the past two weeks has been dry as dirt.

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Severna Park, Md.: Hi Lori. Steven Pearlstein today wrote a column in which he says that we "just don't get it" about this bailout, that it is necessary to keep our economy from crashing. I think what we all are feeling is that for many of us, the economy already has crashed. We don't want to see our government buying up bad securities to keep the rich from suffering; instead we want the market to "heal itself" by returning to fundamentals, regardless of how painful it is (and regardless of how many rich people have to suffer too). Why would this be so bad?

washingtonpost.com: They Just Don't Get It (Post, Sept. 30)

Lori Montgomery: It might not be so bad. I don't think anyone knows for sure -- that's why this is such a difficult vote for lawmakers.

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Washington: Apparently banks are reluctant to lend to each other, to businesses or to consumers (although I still can get a loan). Do you know what are the real causes, and will this bailout money will remove their apprehension about loaning?

Lori Montgomery: Banks have been very reluctant to answer that question.

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Lori Montgomery: Okay, folks. Time's up. Thanks for chatting, and remember: It's always darkest before the dawn.

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