WASHINGTON – The $700 billion bailout compromise announced yesterday by U.S. Treasury Secretary Henry M. Paulson Jr. was rejected this afternoon by the U.S. House in a 228-to-205 vote.
“The American people rejected this bailout and now Congress did likewise,” said U.S. Rep. Mike Pence, a Republican from Indiana, according to Bloomberg News.
The legislation would have given the Treasury broad authority to buy troubled assets from financial companies.
“I’m very disappointed,” House Financial Services Committee Chairman Barney Frank, D-Mass., said in a statement after the vote. “The Republicans killed this.”
No further vote on the plan was expected today, he told Bloomberg News. Democrats voted 140 to 95 in favor of the legislation, while just 65 Republicans backed the bill and 133 opposed it, Bloomberg said.
Federal Reserve Chairman Ben S. Bernanke last week had warned of “grave threats” to the global financial system if Congress rejected the plan.
The compromise measure – the Emergency Economic Stabilization Act of 2008, hammered out with input from Democratic and Republican congressional leaders – included a Republican proposal that would have allowed for congressional oversight. But critics saw the Paulson plan as too risky and too costly, while many House Republicans also opposed it on philosophical grounds.
One opposition leader, U.S. Rep. Jeb Hensarling, R-Texas, declared that the bailout might put the nation on the “slippery slope to socialism.” Even Frank, a staunch advocate of the plan, acknowledged that it is seen by many voters as “bailing out Wall Street.”
U.S. stocks – which already had begun to fall earlier today on news of Wachovia Corp.’s purchase by Citigroup Inc., in a Federal Deposit Insurance Corporation (FDIC)-backed deal, and the weekend rescues of three European banks, including Amsterdam-based Fortis – plunged on the news, with 23 shares falling for each one that rose on the New York Stock Exchange (NYSE), Bloomberg News reported.
The decline was broad-based, paring at least 2 percent from each of the 10 industries in the S&P 500, Bloomberg said.
Wachovia shares were frozen today on NYSE after falling more than 90 percent before the official open of the trading day. Many financial institutions with Rhode Island operations also were among the losers.
Sovereign Bancorp (NYSE: SOV) ended the day down $5.52, or 65.95 percent, at $2.85 per share after dipping below $2.50 earlier in the day. “We’re not aware of any specific reasons why this happened,” Ellen Molle, spokeswoman for Sovereign Bank, said of the declining price of Sovereign shares.
“We’re fundamentally sound. We’re well capitalized,” Molle told Providence Business News. Moreover, she said, additional liquidity is available to Sovereign, should it be needed: $6.2 billion from the Federal Home Loan Bank of Pittsburgh; $4 billion from the Federal Reserve; and $1.8 billion from other sources.
Sovereign, based in Philadelphia, has the third largest market share in Rhode Island in terms of deposits. Bank officials found no evidence of unusual withdrawals across its entire branch network today, Molle told PBN.
Citizens Financial Group parent Royal Bank of Scotland (London Stock Exchange: RBS.L; NYSE: RBS) lost ground in both the U.K. and U.S. markets losing 13 percent to 181 British pence (1.81 pounds) in London trading and $1.24, or 31.08 percent, to $2.75 per share in NYSE trading, based on unofficial reports after the close of New York trading. Bank of America Corp. (NYSE: BAC) lost $6.45, or 17.6 percent, to $30.25.
Shares in insurer MetLife Inc. (NYSE: MET) closed down $10.06, or 18.7 percent, at $43.75 per share. Webster Financial Corp. (NYSE: WBS) lost $3.27, or 12.9 percent, to $22.06. Washington Trust Bancorp. (Nasdaq: WASH) ended down $2.81, or 10.4 percent, at $24.16 per share. Rockland Trust Co. parent Independent Bank Corp. (Nasdaq: INDB) improved late in the day to close down $1.01, or 3.4 percent, at $28.97. And Bancorp Rhode Island (Nasdaq: BARI) ended down 97 cents, or 3.3 percent, at $28.54 per share.
“It’s pretty much a nightmare,” Michael Nasto, senior trader at U.S. Global Investors Inc. in San Antonio, told Bloomberg News. “This is the worst we’ve seen it since the credit mess started. Until we know exactly why they didn’t pass it, we’re going to be selling off for a while.”
The Dow Jones Industrial Average ended the day down 777.68 points, or 7 percent, at 10,365.45 points. The Standard & Poor’s 500 Index closed down 101.59 points, or 8.8 percent, at 1,111.18, in its sharpest decline since 1987, with only Campbell Soup Co. gaining ground. The Nasdaq Composite Index ended down 199.61 points, or 9.1 percent, at 1,983.73 points. And the MSCI World Index of 23 developed markets sank as much as 84.59 points, or 6.8 percent, in its steepest intraday percentage retreat since its creation in 1970.
President George W. Bush – who had personally lobbied for the bailout bill’s passage – will talk with congressional leaders “to determine the next step,” according to spokesman Tony Fratto. “There is no question the country is facing a difficult crisis that needs to be addressed,” Fratto said.
“No one is happy about the tough decisions that were made today,” said U.S. Rep. James R. “Jim” Langevin, a Rhode Island Democrat who voted for the bill. “Our economy is in dire shape and drastic action is needed. I firmly believe that we need to act soon to avoid a domino effect that could trigger major job losses and a significant period of economic downturn with negative consequences not just on Wall Street, but on every street in the country.”
Yet, Langevin added, “any proposed legislation must ensure [that] hardworking people will have access to financing for mortgages, as well as auto, student and small business loans. Just as importantly, Democrats must continue to fight to include strong protections for taxpayers, including strong oversight of the administration, caps on executive compensation and equity in companies that later become profitable. Going forward, we must ensure that our financial sector is no longer allowed to put ordinary Americans in danger by pursuing high-risk behavior with little to no oversight.”
Additional information about federal bailout plans for the financial industry is available from the Federal Reserve Board at www.FederalReserve.gov and the U.S. Treasury Department at www.treas.gov.
The truth is the banks have been irresponsible. Politicians appear themselves to be worried about their own savings.Perhaps raising the fdic guarantees could calm the most panicked people in the country who just happen to be wealthy politicians. I refuse to send my good money after bad. We dont need 700 billion tomorrow we need banks to be open and responsible.We also need politicians to listen to constituents and stop trying to save their personal multimillion dollar accounts at Goldman Sachs or Morgan or whoever.
Michael G Riley