A Pause in the Action Following Defeat of Bailout Bill

With the U.S. House of Representatives not scheduled to be in session again until Thursday, the stage today was set for lots of talk but no action, temporarily at least, on the $700 billion federal legislation intended to rescue a financial system in crisis. The House yesterday defeated the bill 228-205, triggering a record-setting drop in the Dow. President Bush pointed out that the $700 billion price tag to start restoring confidence in the financial markets, although it’s obviously sticking in many legislators’ and voters’ craws, is nonetheless smaller than the $1 trillion in value lost yesterday in the stock market. In a campaign address at the University of Nevada in Reno shortly after noon EST, Sen. Barack Obama compared the situation to a neighbor’s house being on fire and endangering one’s own house. “Right now our job is to put the fire out,” he said, and once that’s done, we can then look into the cause of the fire. “This is no longer Wall Street’s crisis,” Obama said, “this is America’s crisis.” Former Securities and Exchange Commission chairman Richard Breeden told CNBC early this afternoon that although he expects the bailout bill to pass, he thinks that the bill’s current form is better than what was originally proposed and that he thinks additional work by Congress will improve it further. Breeden said he thinks that perhaps a bill that’s somewhat smaller in scope, at least initially, would be a good idea. He also said that he favors an increase in the amount of FDIC insurance for individual savers’ accounts, as espoused by both presidential candidates. Finally, just as excess leverage is a key problem in the financial markets, Breeden said he supports helping homeowners to reduce their home loan leverage. At midday, the Dow was rallying from yesterday’s huge loss, up nearly 300 and hovering at around 10,650. The S&P and NASDAQ were also up. Meanwhile the European Commission issued a statement calling on the U.S. government to act decisively in this crisis for the good of the world’s economy.