WASHINGTON – The financial markets crashed yesterday, with the Dow Jones Industrial Average plunging a one-day record 780 points immediately after the House rejected the Bush administration’s proposed $700 billion bailout for the mortgage industry.
Elsewhere, Treasury yields plummeted and swap spreads widened. "Anything with a credit component to it just got smashed," Christopher Sullivan, chief financial officer for United Nations FCU in New York, told The Credit Union Journal after the market closed.
Treasury Secretary Henry Paulson and leaders from both parties who supported the plan vowed to bring the massive bailout back for another vote after working on changes, but that won’t be for several days as Congress adjourned yesterday for its recess around the Jewish New Year celebration. The Senate is expected to delay a vote on the bailout scheduled for Wednesday, while House leaders try to resurrect the package.
"The legislation may have failed; the crisis is still with us," said House Speaker Nancy Pelosi, D-Calif., in a news conference after the defeat. "What happened today cannot stand."
Credit union leaders said yesterday their focus will be on ensuring credit unions are included in any plan approved by the Congress.
"Credit unions have widely differing views about this legislation. Our major concern is that, whatever package ultimately comes forward, it should not in any way disadvantage credit unions," said CUNA President Dan Mica in a prepared statement. "Further, while we are working to ensure that credit unions are eligible for what the package offers, we are also working just as hard to ensure credit unions never have to use the provisions of this legislation."
"We continue to make sure credit unions are not disadvantaged by any rescue plan and that we are treated with parity with banks and thrifts," said NAFCU President Fred Becker.
The proposed bailout appeared Sunday to be heading for passage, albeit narrowly, after Republican House leaders dropped their opposition and urged their colleagues to approve the package. But during a four-hour debate on the House floor yesterday it appeared rank and file members from both parties opposed the package based on overwhelming opposition by from voters, and the body voted it down by a 228-to-205 tally.
"I fear, other options have never been considered seriously," said Texas Republican Jeb Hensarling, who worried the plan could leave the taxpayers with "the mother of all debts."
"Action or inaction today is false choice," said Hensarling’s Texas Democratic colleague Lloyd Doggett, who worried about giving the Bush administration such a large funding. "We’re handing $700 billion over to the Bush administration that’s done so much to cause the problem."
Democrat Lynn Woolsey of California said she would vote against the package because it does little to address the problems among homeowners and foreclosures. "Why isn’t Wall Street paying for the mess it created?" she asked.
Republican Mike Pence of Indiana worried that the massive federal intervention in the markets will change the relationship between the government and the people. He said he and other Republicans favor a less costly alternative they put forward to offer guarantees for distressed mortgage assets, instead of a wholesale purchase. "There were alternatives," said Pence.
At the end of the debate the leaders of both parties, House Speaker Pelosi and Majority Leader Steny Hoyer of Maryland, and Minority Leader John Boehner of Ohio and Spencer Bachus, leader Republican on the House Financial Services Committee, all spoke in favor the package and urged their colleagues to support it.
"We have an imperfect product, but a product that may work," is how Boehner, who opposed the bill early on summarized their position. "Just think about what happens if we don’t pass this bill."
