Citizens question effectiveness of bailout
Despite the House of Representative's vote against a financial bailout Monday, President Bush and other bailout advocates continue to push for a bill that could extend up to $700 billion to unclog the country's financial system.
While the Senate passed a revised bill, titled the Emergency Economic Stabilization Act of 2008, Wednesday by an almost 3-to-1 ratio, allowing the vote to move to the House today, it is yet unclear to many whether a bailout will aid a faltering economy.
"This is an issue that is affecting hard-working people," Bush said at a White House meeting yesterday. "They are worried about their savings. They're worried about their jobs. They worried about their houses. They're worried about their small businesses."
The new bill would allow the federal government to buy illiquid mortgage-backed securities to increase the liquidity of secondary mortgage markets, and reduce potential losses encountered by financial institutions owning those securities, according to the bill.
The bailout would also allow more than $100 billion of tax breaks, including relief for businesses and help for more than 20 million middle class taxpayers. The plan aims to up federal insurance for deposit accounts from $100,000 to $250,000 in a move to calm voter fears of bank collapses, according to the bill.
Republican presidential candidate John McCain emphasized the bill would be an effort to help the everyday man, not a means to line Wall Street's pockets.
"The first thing I'd do is say, ‘Let's not call it a bailout," McCain said Tuesday during an appearance on CNN's American Morning. "Let's call it a rescue. Because it is a rescue of Main Street America."
Democratic presidential candidate Barack Obama argued the bailout is necessary to avoid a collapse of the economic system, which would drag down not just Wall Street investment houses, but also the savings of millions of Americans.
"What [the housing crisis] means is that if we do not act, it will be harder for you to get a mortgage for your home or the loans you need to buy a car or send your children to college," Obama said during a speech in La Crosse, Wisconsin Wednesday. "What it means is that businesses won't be able to get the loans they need to open new factories, or hire more workers, or make payroll for the workers they have. Thousands of businesses could close. Millions of jobs could be lost. A long and painful recession could follow."
Stephanie Jablonsky, a Rutgers College junior, said politicians must take a stance on this issue especially now because it is an election year.
"Regardless of the ideology that either candidate endorses, at this point in the election it would be political suicide to stand back and appear to do nothing," she said.
Citing a need to aid the U.S.'s credit economy, Susan Feinberg, associate professor of Management and Global Business, said some form of a bailout is necessary.
"The market for commercial paper is always in need of cash up front," she said. "A lot of buying is done with short term debt, and that essentially has evaporated."
But if the stock market is any reflection of people's feelings towards a bailout, it might illustrate a cry for some kind of economic savior, or it might indicate Americans' distrust of the bailout's capabilities.
While the stock market witnessed its worst drop since 1987 after the House initially voted against the bailout, stocks reversed course on Tuesday and jumped 485.21 points, erasing more than half its loss from Monday, possibly in correlation to discussions of a revised bill.
But even now with the Senate's vote for this revised bill, the Dow Jones Industrials fell 348 points to the 10,482 level yesterday, and Wall Street suffered another huge drop amid growing fears that the government's financial rescue plan might not succeed in fixing the financial crisis.
Not all politicians advocate the "rescue plan." Republican Rep. Ron Paul said during CNN's Late Edition on Sept. 21 the bailout would essentially make the financial situation worse, and he advocates a financial system based on savings.
"There's a lot of things that we can do," Paul said. "But the worst thing that we can do is perpetuate the bad policies that gave us this trouble in the first place, and that is that we no longer, over the last quite a few decades, believed in free-market capitalism. Capital is supposed to come from savings. We're supposed to work hard and save."
Paul said Americans perpetuate a cycle of borrowing, spending and consuming, and now it has caught up to Americans and is undermining the economic system. He said the government needs to change basic policy, rather than give money to the banks.
"Yes, there are going to be losses, but everybody lived beyond their means when the prices of houses were going up," Paul said. "Nobody cared about it. They kept borrowing against it. Oh, yes, that was fine and dandy. Everybody was making money, and the owner of the home kept borrowing and living beyond their means. Now they have to live beneath their means."