It Is A Surprise That The Bailout Plan Fails To Pass The House

Graphic courtesy of the WSJ

From the WSJ:

WASHINGTON — The House of Representatives delivered a stunning defeat to legislation designed to rescue the nation’s troubled financial system, sweeping aside a call from President Bush to “send a strong signal” of confidence to markets at home and abroad.

The 228-205 vote Monday exposed deep unease among rank-and-file lawmakers in both parties with what would be an unprecedented intervention in the private sector. The vote came as turmoil in financial markets widened, prompting the Federal Reserve to inject new capital into credit markets and forcing the government-arranged sale of Wachovia Corp. to Citigroup.

Monday, the Dow Jones Industrial Average plummeted 777.68 points, its biggest one-day drop in history. It ended down 7% at 10365.45, down 9.3% since crisis erupted a few weeks ago on Wall Street following the meltdown of Lehman Brothers Holdings. All 30 of the blue-chip indicator’s components fell Monday.

The Bush-backed package now faces an uncertain future, though party leaders on both sides of the aisle are sure to consider revising the initiative, which Mr. Bush said Monday is needed to “keep the crisis in our financial system from spreading throughout our economy.”

After the vote, House Minority Leader John Boehner (R., Ohio) said there would be an effort to bring back another bill, with further changes. “We’ve got to find a true middle ground,” he said. “We need everybody to calm down and relax and get back to work.”

Lawmakers on both sides of the aisle suggested the legislation is not dead. House Speaker Nancy Pelosi (D., Calif.) said at a press conference that the “lines of communication” remain open between policymakers and that Congress needs to take another “bite at the apple” on the market rescue plan legislation.

“It is difficult for me to imagine we would leave the market to its own devices and fears until Friday,” said Rep. Adam Putnam (R., Fla.), the third-highest ranking Republican in the House. “We’re encouraging members to understand the consequences to doing nothing, but I think members have strong convictions about this bill.

I have to say that I was surprised by the result (and yes favorite reader you were right about this one) as based on the news reports from the weekend, a compromise had been reached, the members of the house were in agreement and the bill was going to pass. I’m also wondering why people were even talking as if they had an agreement when the vote was so contentious, where were the people who voted against it when the “agreement was reached “, at the local pub?

I want to say that the bill’s defeat gives way to the possibility of a better solution, improvements being made to the current bill, etc, etc, but at this juncture I think all we can expect is more partisan bickering, and the lack of any real consensus that will allow a deal of any kind to be reached.

Perhaps the area of hope is that maybe the markets will accept that they have to fix the problem themselves, instead of relying on ill-conceived assistance from the government.

You can read more here.

Sources:

The WSJ: “Bailout Bill Fails in House Vote Amid Defections in Both Parties” — Greg Hitt, September 29, 2008.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

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