Bailout Fails in the House
The failure of the 
US House of Representatives to pass the 700 billion dollar bailout bill sent shockwaves through world financial markets. The bailout bill is unpopular with most Americans and most politicians are reluctant to go against the wishes of a majority of their constituents. Forex traders and markets were left in limbo and the prognosis for the US dollar is negative despite a slight rally against the Euro earlier in the week.
The Senate Vote
On Wednesday, October 1st the US senate will vote on the proposed bailout plan with several modifications. The vote will take place after sundown out of respect of the Jewish holidays of Rosh Hashanah. The bill includes a provision raising the FDIC insurance cap from $100,000 to $250,000. The Federal Deposit Insurance Corporation was created by Franklin D. Roosevelt’
s administration in 1933 after numerous bank failures eroded public confidence in the banking system.
Added Provisions
Presidential candidates John McCain and Barack Obama have both indicated they will be present for the vote. Senate Majority Leader Harry Reid, D-Nev stated, “Senate Democrats and Republicans believe it is essential that we work quickly on this important legislation to restore confidence to our financial system and strengthen the economy,” Other provisions include renewable energy tax incentives, for both individuals and businesses. Also included in the bill is some relief from the Alternative Minimum Tax, without which millions of Americans would have to pay a”
wealth tax.” The debate over the Alternative Minimum Tax is ongoing and is an annual ritual in the House and Senate. The bill also contains a provision unrelated to the bailout which would require insurance companies to provide coverage for mental illness at the same level as physical illnesses.
Markets React
After Mondays failure of the House to pass the bailout bill markets reacted sharply with a 777 point drop in the Dow, the biggest one day drop in history. The Dow recovered somewhat Tuesday with a jump of 485 points with investors banking on the passage of the $700 billion bailout bill. The crisis spread to and the bank to bank lending rates jumped and many saw credit markets as frozen. While Forex traders and markets did not react as violently as stock markets many analysts are predicting a looming lack of confidence in the US dollar.
Lack of Public Support
The bailout bill no matter what the provisions does not have widespread public support in the US. Those politicians who do vote for passage will have a hard time explaining their votes come election time. In a statement addressed to lawmakers President Bush stated, “Our economy is depending on decisive action from the government, the sooner we address the problem, the sooner we can get back on the path of growth and job creation. This is what elected leaders owe the American people, and I am confident that we’ll deliver.” Given Mr. Bush’
s low ratings in the polls it remains to be seen whether he can persuade members of his own party to vote for the bailout plan. Wednesday evenings vote could very well determine the fate of markets globally.
