$700 Billion Plan Rejected as American Voters Voice Discontent
The decision by the U.S. House of Representatives to reject the proposed $700 billion bailout for the financial sector has had rapid and far reaching repercussions. Within Monday’s seven and a half hour trading day, a record $1.2 trillion disappeared from the U.S. stock market. The Dow Jones industrial average tumbled by 777.68 points, or close to 7 percent, breaking all previous one-day decline records, while the S&P 500 dropped by 8.5 percent and NASDAQ by 9.1 percent.
After more than a week of exhaustive debate, when it came to the final vote there were 205 in favor of the bailout and 228 against it. It appears that American voters were the driving force behind the decision taken, as Congressional offices have been flooded by calls from citizens voicing their concerns with regard to the bailout plan, with the overwhelming majority being against it. While many agree that the American economy is on the brink of disaster, authorities remain divided in how best to address the problem. It would seem that the frantic appeal by Treasury Secretary Henry Paulson and Federal Reserve Ben Bernanke to urgently pass legislation supporting the multi billion dollar bailout, has to an extent stirred up suspicion in the general public that the White House and Treasury are exaggerating the extent of the problem in an effort to rush through legislation for unprecedented intervention in the financial sector, with the main benefactors being the overpaid executives who have caused the problem in the first place.
Nonetheless, the negative vote came as a surprise to many, leaving the Bush administration and congressional leaders in a quandary as to what to do next. They could try, once again, to remodel the plan, taking into account the many concerns being expressed, however, one way or the other it is likely to be taxpayers footing the bill, and it has been made clear that is an option which is unacceptable. Moreover, voting members of the House of Representatives expressed concern that an intervention of this magnitude could fundamentally and permanently alter the free enterprise system cherished by Americans.
Problems with financial institutions are not restricted to the United States, but are fast becoming a worldwide phenomenon. Recent bank rescues include the part nationalization of Dutch-Belgian bank Fortis NV, the nationalization of British mortgage lender Bradford & Bingley, and the part nationalization of Iceland’s third-largest bank Glitnir, while Germany’s second biggest real estate lender Hyper Real Estate Holding, reported securing a multibillion euro line of credit from a number of banks in order to keep afloat. All these factors no doubt contributed to the dismal performances at major stock exchanges on Monday, with the London Stock Exchange’s FTSE100 dropping by 3.2 percent, Germany’s DAX was down by 2.9 percent, France’s CAC fell 2.9 percent, Japan’s Nikkei 225 index declined by 4.6 percent, Hong Kong’s Hang Seng index dropped by 5.5 percent, while key indices in New Zealand and Australia reflected a decline of around 4 percent.
With no clear solution in sight for an extremely complex situation, there is little doubt that stock exchanges are in for an extended period of uncertainty as authorities battle to whip the financial sector into some kind of semblance of order.