$700B Bailout Plan Is Now Law
Friday, October 03, 2008SUSIE GHARIB: The $700 billion financial rescue plan is a reality tonight, after the House of Representatives finally approved it and President Bush signed it. The House voted 263 to 171 in favor of the measure, after failing its initial vote on Monday. On Wall Street, euphoria over the plan`s approval quickly turned to concern that it might not be enough to ease tight credit conditions. The Dow, which had been up more than 250 points at the time of the vote, ended down 157 points. The Nasdaq fell 29. But as Darren Gersh reports, many on Main Street are warming to the benefits of the plan.
DARREN GERSH, NIGHTLY BUSINESS REPORT WASHINGTON BUREAU CHIEF: Just an hour-and-a-half after the House approved the rescue package, the president signed it into law. Mr. Bush praised Congress for adding tough oversight and limits on golden parachutes for failed CEOs. And he promised decisive action on the credit crunch.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The smoother flow of credit, more businesses will be able to stock their shelves and meet their payrolls. More families will be able to get loans for cars and homes and college education.
GERSH: There were two reasons the House of Representatives made a U-turn after voting down the rescue plan on Monday. The economic news is now much worse and the consequences of doing nothing seemed far higher. House Speaker Nancy Pelosi said governors across the country are warning they`re being frozen out of credit markets.
REP. NANCY PELOSI (D-CA), SPEAKER: In my own state of California, officials, including the governor, are urgently calling for federal legislation to avoid economic catastrophe.
GERSH: Fifty-eight members of Congress switched from a no vote on Monday into the yes column today. Some pointed to the sweeteners in the bill like an increase in Federal Deposit Insurance Limits to $250,000. But Republican Zach Wamp says it was the message from home that really changed his mind.
REP. ZACH WAMP (R), TENNESSEE: I`ve been listening to the small business people all week long, and they said, thanks for voting no on Monday. And thanks standing up for us, but you`ve got to do something. Congress has to act. We`re out of options.
GERSH: There was no sign the yes vote would unfreeze lending anytime soon. Key measures of credit stress show banks are still hoarding cash. How fast that fear lifts could depend in part on how Treasury Secretary Henry Paulson uses the $700 billion President Bush has given him. But economist Desmond Lachman says credit markets have real doubts the Paulson plan will work. He says banks that do sell securities to the Treasury at a loss will need to make up for it by slashing lending.
DESMOND LACHMAN, RESIDENT FELLOW, AMERICAN ENTERPRISE INSTITUTE: The only way that this can address the capital shortage of the banks is if they buy the assets at a substantially inflated value, and Mr. Paulson seems to be indicating that that`s not his intention.
GERSH: Secretary Paulson is clearly hoping to move fast. He`s already preparing to hire as many as 10 asset managers to help get the money moving right away. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
JEFF YASTINE: It wasn`t hiring, but firing that was the trend for many companies last month. Today`s employment report shows the U.S. economy lost the most jobs in five years last month. Non-farm payrolls fell by 159,000 jobs, that was far more than expected. And the unemployment rate held steady at 6.1 percent, but economists believe the job market will continue to crumble. Erika Miller explains why.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: For economists like David Greenlaw, today`s employment report settles any debate about whether the economy is in recession. He says we`re at the start of what could be the most painful contraction in almost two decades.
DAVID GREENLAW, CHIEF U.S. FIXED INCOME ECONOMIST, MORGAN STANLEY: There`s some question as to the timing of when the recession started. But we think that the economy contracted in the third quarter. We think it`s going to contract again the fourth quarter of this year and the first quarter of next year. So I think that we`re just on the verge of the early stages of recession at this point.
MILLER: Non-farm payrolls have fallen every month this year, although September`s drop was by far the biggest. Some economists expect monthly job losses could eventually exceed 200,000. The unemployment rate has also risen steadily since the start of the year. And many economists, including Kevin Logan, think the rate could approach 7 percent.
KEVIN LOGAN, SENIOR MARKET ECONOMIST, DRESDNER KLEINWORT: We`re already seeing businesses make decisions now to cut back on spending, cut back on hiring, and as more people enter the labor force, and as people lose jobs and are unable to find jobs again, the unemployment rate is bound to rise.
MILLER: That`s not just bad news for workers, it`s also bad for retailers, suggesting a sharp slowdown in consumer spending during the crucial holiday season. Economists warn the government`s massive financial rescue plan probably won`t do much to encourage spending or hiring near term. Today`s employment report supports widespread expectations that the Federal Reserve will lower interest rates at its next meeting, October 28th and 29th. A growing number of Fed watchers think there could be a rate cut before then.
GREENLAW: The labor market signals are getting louder. And the picture has deteriorated pretty sharply in just the last couple of weeks. So we`ve seen some change in tone from Fed officials. I think we`re going to see more of that over the next few days. And I think that we`ll have a rate cut some time in the next week or two.
MILLER: Some economists don`t think lower interest rates and the bailout package will be enough to help the economy recover. They would like to see the government to consider additional stimulus measures, including block grants for infrastructure development. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
