Senators loaded the economic rescue bill with tax breaks and other sweeteners before passing it by a wide margin, 74-25.
Both presidential candidates, Republican John McCain and Democrat Barack Obama, made rare appearances to cast “aye” votes, as did Obama’s running mate, Sen. Joe Biden of Delaware. In the final vote, 39 Democrats, 34 Republicans and independent Sen. Joe Lieberman of Connecticut voted “yes.” Nine Democrats, 15 Republicans and independent Sen. Bernie Sanders of Vermont voted “no.”
The rescue package lets the government spend billions of dollars to buy bad mortgage-related securities and other devalued assets held by troubled financial institutions. If successful, advocates say, that would allow frozen credit to begin flowing again and prevent a deep recession. House leaders were hunting for the 12 votes they would need to turn around Monday’s 228-205 defeat. They were especially targeting the 133 Republicans who voted “no.”
The Senate rubber-stamping the Wall Street bailout.What happen next ?
Here’s the most likely scenario:
Hank Paulson & Co. survey the banking industry and decide who will stay and who will go. JP Morgan, Citi, Wells Fargo, and Bank of America will stay. Goldman will probably stay. Morgan Stanley might stay. Everyone else in trouble could go. The government doesn’t need to save all banks. It just needs to save some.
Within a month or two, Paulson buys $250 billion of crap assets. He pays more than market value, but not an egregious amount more (because the public will be watching these early rounds). Over the next six months, he buys $700 billion of assets…and then he–or his successor–asks Congress for more money.
Confidence improves modestly, but banks continue to hoard capital and credit markets stay tight. Loans stay expensive and hard to get. This keeps pressure on the economy.
The credit crunch filters through to consumers: Credit cards, home equity loans, mortgages, car loans, etc., get more expensive, putting more pressure on consumers and forcing them to cut back further.
The economic news continues to get worse: American consumers continue to pull back, housing continues to fall, companies begin to cut back, which leads to layoffs–which puts more pressure on consumers.
The global economy continues to weaken: Europe, Asia, and, eventually, emerging markets. This is already happen, and everyone else is later in the cycle than we are.
The stock market continues to fall, as corporate earnings come under increasing pressure and hope for an early 2009 recovery fades. Analysts are still expecting huge growth in S&P 500 earnings for next year. These estimates will get cut by at least a third.
The government enacts further measures to try to stop the fall in asset prices (stocks, houses)–including an expansion of the bailout plan–but these don’t work. Governments always try to do this. They never succeed. All they do is delay the inevitable.
A new round of white-collar prosecutions send a new posse of corporate villains to jail. Some will be guilty. Some won’t. All will be hated.
The government announces a new New Deal, finally investing in the country’s infrastructure, in the hopes that this will stimulate the economy (which it will). Investments include broadband, green tech, wireless, physical infrastructure, et al.
Eventually, asset prices will bottom: Housing down in real terms, the stock market down , this will happen by early 2010, so the recovery can begin. Warren Buffett loads the boat with stocks, but by that time, most people are too depressed and poor to follow him.
Unlike Japan, we finally force our banks to write down assets as far as they need to be written down…and then recapitalize them. This is what we should have done in the current bailout, but we’ll get it right next time we hope.
We gradually begin a long-term economic recovery, one in which consumers save a greater percentage of income, thrift and saving again become admirable qualities, we gradually begins to wean itself off international oil, and the bacchanalian decades of the 1990s and 2000s become an embarrassing memory.
The stock market finally begins a new, long-term bull market, in which stocks once again return 10%+ per year. Unfortunately, most Americans will be so sickened by the stock losses they’ve sustained since 2000 that they’ll miss many years of it.
The same thing you always get with voodoo economics …… Nothing Good.
As people struggle to pay their mortgages and provide basic needs for their families, they will not be buying automobiles at the rate they did last year. Whether or not the credit supply is opened up a bit will not increase automobile sales, people need to be able to afford financing another vehicle. A bailout of the financial institutions will not solve this problem. If you can not afford to buy a BMW, buy a Kia. Auto sales down.Bad news! This is great News, those 20th century dinosaurs need to be recycled. Recycled into green energy mass transit systems. Preventing idiots from going into debt to purchase gas guzzling road hogs will save oil that we have to import from dangerous countries, improve global warming, and improve the chances of turning to clean renewable energy.
Don’t forget the Winners! Not the rich, they always win no matter what, but ordinary middle class people who will benefit from the collapse.
Liquor and Bars
Those that don’t go to church, will try and drink their misery away, as a hopeless situation leads to the solace of the bottle. Defeated husbands will hide from angry wives, in countless dive bars across America, and the globe.
In short;The catalyst for the rescue operations was paralysis in the credit markets. Some companies have had trouble borrowing in the commercial-paper market to finance their short-term cash needs. Should conditions continue to worsen, it’s plausible that some employers will find they can’t meet their payrolls. When workers don’t get their paychecks, will that be enough to shock them into recognizing we face a crisis? It’s a bitter pill to swallow, but it’s the cyanide of Republican greed: we’re all interconnected in this economy and their downfall will bring the rest of us with them.