2008 Woodie Awards
Congress passes historical bailout plan
Raymond McDonough
Issue date: 10/7/08 Section: News
On Friday, October 3, 2008, President Bush was presented with a bill approved by Congress that would provide $700 billion to the failing financial industry. He immediately signed it, and the unprecedented bailout was implemented. This comes only days after Congress turned down a similar bill. What made Congress change their mind? It may have been the warnings from Federal Reserve Chairman Ben Bernanke and the Treasury Secretary Henry Paulson, but more significantly it may have been the results of Congress failing to take action the first time the bill was presented.
On Monday they were presented with a similar bill that would have also provided the financial industry with $700 billion. Investors were expecting a bailout to be passed, and they wondered how much it would be, not whether or not it would get through. However, it was not approved, and Congress' failure to take action contributed to the largest one-day stock market drop in history, 778 points (measured by the Dow Jones Industrial Average). On Tuesday, Ben Bernanke claimed that in absence of a bailout "…jobs will be lost, our credit rate will rise, more houses will be foreclosed upon, and GDP will contract." Adding that "…the economy will just not be able to recover in a normal, healthy way," (Chicago Sun Times). It seems that he was right; according to the Labor Department 159,000 jobs were lost in September, the largest cut in five years.
So what exactly is $700 billion dollars going to do for the financial industry? The legislation allows the government to buy troubled assets and bad mortgages from banks and financial institutions. This would enable those institutions to remove debt from their balance sheets making them more willing to lend, which will ease the credit crisis and lift a huge burden off of the financial industry. However, some argue that the bailout has come too late. It is true, if enacted earlier the plan would have restored consumer confidence and may have encouraged investing, creating less of a decline in the stock market than what occurred this past week, but as they say, better late then never.
Many critics of the bailout claim that it is a program designed to save only Wall Street and does nothing to help Main Street. However, this is a misconception. If the plan works, the lines of credit that will open up will not only affect businesses, but the average person. It will be much easier to obtain a loan for things like education, a car or a house, which may bring some sort of stability back to the real estate market.
If you are interested in learning more about financial markets attend a SIFE meeting held on Tuesdays and Thursdays at 8 p.m. in the basement of Knott Hall. SIFE is an international organization that mobilizes university students around the world to make a difference in their communities while developing the skills to become socially responsible business leaders.
Raymond McDonough is a member pf the class of 2010 and periodically contributes an informative column to The Greyhound
On Monday they were presented with a similar bill that would have also provided the financial industry with $700 billion. Investors were expecting a bailout to be passed, and they wondered how much it would be, not whether or not it would get through. However, it was not approved, and Congress' failure to take action contributed to the largest one-day stock market drop in history, 778 points (measured by the Dow Jones Industrial Average). On Tuesday, Ben Bernanke claimed that in absence of a bailout "…jobs will be lost, our credit rate will rise, more houses will be foreclosed upon, and GDP will contract." Adding that "…the economy will just not be able to recover in a normal, healthy way," (Chicago Sun Times). It seems that he was right; according to the Labor Department 159,000 jobs were lost in September, the largest cut in five years.
So what exactly is $700 billion dollars going to do for the financial industry? The legislation allows the government to buy troubled assets and bad mortgages from banks and financial institutions. This would enable those institutions to remove debt from their balance sheets making them more willing to lend, which will ease the credit crisis and lift a huge burden off of the financial industry. However, some argue that the bailout has come too late. It is true, if enacted earlier the plan would have restored consumer confidence and may have encouraged investing, creating less of a decline in the stock market than what occurred this past week, but as they say, better late then never.
Many critics of the bailout claim that it is a program designed to save only Wall Street and does nothing to help Main Street. However, this is a misconception. If the plan works, the lines of credit that will open up will not only affect businesses, but the average person. It will be much easier to obtain a loan for things like education, a car or a house, which may bring some sort of stability back to the real estate market.
If you are interested in learning more about financial markets attend a SIFE meeting held on Tuesdays and Thursdays at 8 p.m. in the basement of Knott Hall. SIFE is an international organization that mobilizes university students around the world to make a difference in their communities while developing the skills to become socially responsible business leaders.
Raymond McDonough is a member pf the class of 2010 and periodically contributes an informative column to The Greyhound
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