The $700 billion bailout proposed by Secretary of Treasury Hank Paulson almost a fortnight ago underwent a critical vote and failed stunningly 228-205 on the floor of the House this Monday Sept. 29.
Wall Street investors watched anxiously as the Representatives cast their votes 200 miles away in Washington, D.C., on the House floor. As the uncertainty of the bill's fate grew, the Dow began to plummet.
The investors viewing the House vote realized the bill would inevitably fail, and the market made a sudden nosedive of 400 points in a mere five minutes. During the waning minutes of the vote, Speaker Nancy Pelosi (D-Calif.) added to the drama in the House by delivering a vehement speech urging her fellow congressmen and women to sign the bill, while lambasting the Bush administration's financial irresponsibility as the primary cause for the crisis.
The consequences of the failed vote manifested in a record 777.78-point loss, which surpassed the Sept. 17, 2001 loss, the first day of trading after Sept. 11, by almost 100 points.
That massive point decrease translated into a loss of over $1 trillion, marking another unfortunate first in the stock market this week.
Many factors contributed to the death of the bailout bill on the floor of the House, but perhaps the most gaping hole in the bill was the sense of rush and unpreparedness that accompanied it. The quickly drawn-up proposal could not find the support of many House Democrats and Republicans alike.
Dissenting Democrats argued irresponsible and risky companies with wealthy executives would stand to profit with "golden parachutes" from the bailout, while the Republicans believed that signing over a blank check to companies and making the American taxpayer pick up the slack was utterly unacceptable. Many experts have argued that there are far better ways than injecting an obscene amount of money into failed companies.
For one, not a penny of the bailout deals with the immense home foreclosure crisis that affects everyday Americans and arguably caused this - in former Federal Reserve Chairman Alan Greenspan's words - "once in a century" occurrence.
To Senate and House leaders, the Bush administration, and the Federal Reserve Chairman Ben Bernanke, the bailout represents the perennial shot in the arm on the largest scale imaginable. The credit market, including mortgage companies, banks, and major investors, is stalling to lend money.
For all businesses simply to function, credit must be available to the companies. With the market unable to garner confidence in investors and consumers alike, however, proponents of the bill claim our economy could collapse as easily as a house of cards.
Many speculated that Tuesday would bring another record loss, but the Dow rallied for a gain of 458 points, with the hope that the Senate would pass a stronger bailout bill with more specific provisions. Senate leaders are confident that their bill will pass early Wednesday evening with bipartisan support and not suffer the incessant bickering and finger-pointing of the House. Senators Biden, McCain, and Obama all expressed their strong support for such a bailout and promised their presence for a vote on the bill Wednesday. Added provisions of the $700 billion bailout include increasing the FDIC insurance cap from $100,000 to $250,000 in hopes of restoring confidence to the market.
Although the House must pass the bill before it is allowed to reach the Senate, a sense of urgency catalyzed the senators to draft their proposal for the bill Tuesday, vote Wednesday, and attach it to another bill dealing with alternative energy tax incentives.
After a tumultuous week for the economy, one thing is for certain: No single solution will be able to solve the economic crisis.
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