House votes down $700 billion bailout

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WASHINGTON --- The economy has endured hurricanes, soaring fuel and food prices, falling home values and a growing credit crisis. Can it now survive Congress?

The House's stunning defeat of a $700 billion package urgently championed by President Bush, sent shock waves through Capitol Hill, the trading floors on Wall Street and the Oval Office on Monday.

"An economic 9-11," warned Terry Connelly, dean of Golden Gate University's Ageno School of Business, of the potential fallout. As the package went down, panicked investors caused the Dow Jones industrials to nosedive nearly 780 points in their largest one-day point drop ever.

Lawmakers defeated the bill by a 228-205 vote, but Democratic and Republicans leaders and Treasury Secretary Henry Paulson pledged to keep working for a deal acceptable to all sides.

In the meantime, the economic wreckage that the administration and Congress have warned about -- rising unemployment, shrinking nest eggs and prolonged recession -- might not happen immediately, but that doesn't mean it won't.

"This is like the advice you get from the doctor who says you should quit smoking," said Robert Brusca, chief economist at Fact and Opinion Economics in New York. "You know he's right. But if you don't, you're not going to die tomorrow and you're not going to die next week. But at some time, it's probably going to get you."

For now, Treasury was expected to work with other government agencies, including the Federal Reserve and the Federal Deposit Insurance Corp., to deal with problems on a case-by-case basis.

There are some steps the Federal Reserve can take to cushion damage from the worst credit crisis since the Great Depression.

The Fed, which has been providing billions in short-term loans to help banks overcome credit stresses, could keep expanding those loans in an effort to spur financial institutions to lend more freely again. And, it could keep working with other central banks to inject billions into troubled financial markets overseas.

Also, the Fed could make it easier for banks and investment firms to draw emergency loans from the central bank by expanding the type of collateral they pledge to back those loans.

And, if the credit crisis were to turn even worse, the Fed also has the power in extreme circumstances to expand emergency lending to other types of companies and even to individuals if they are unable to secure adequate credit from other banking institutions.

The Fed also could do an about-face and start cutting its key interest rate again. The Fed in June halted an aggressive rate-cutting campaign and has kept its key rate since at 2 percent.

While some Fed officials doubt that another rate reduction would do much to persuade banks to begin lending again, Brian Bethune, economist at Global Insight, insists a deep cut would pack a powerful punch. It would lower the prime lending rate, now at 5 percent, that serves as a benchmark for credit card rates and many other types of loans.

Even if the bailout were enacted by Congress and actually worked, many predicted the economy will probably shrink in the final quarter of this year and in the first quarter of next year, meeting the definition of a recession. If Congress doesn't act, analysts, who were downgrading their economic forecasts, believe those contractions will be deeper.

The unemployment rate -- now at a five-year high of 6.1 percent -- is expected to hit 7 or 7.5 percent by late 2009, which would be the highest since after the 1990-91 recession. Some economists say the rate could rise even more.

More banks could fail, too. In the second quarter that ended in June, the Federal Deposit Insurance Corp. estimated 117 banks and thrifts were in trouble, the most since 2003. The threat of more banks failing forced the government to act swiftly.

The bailout plan was intended to revive banks on Wall Street and Main Street by buying billions of their worst mortgage-related assets so that lending, the oxygen of the American economy, would flow freely again.

"People are going to go home and look at their 401(k)'s and not be very happy, and these are not just people from New York, but Iowa and everywhere else. This bill is meant for everyone -- not just Wall Street but Main Street," said New York Stock Exchange floor trader Theodore Weisberg.

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a different drum
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a different drum 10/01/08 - 12:11 am
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These politicians are really

These politicians are really skilful at pulling the wool over the public's eyes.

marandan
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marandan 10/01/08 - 12:13 am
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Yeah but you know there is

Yeah but you know there is only one channel that will ever put out anything that is negative towards the DEMS, and that is fox, but the DEMS sheep won't watch fox, because the truth scares them.

a different drum
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a different drum 10/01/08 - 12:14 am
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I was watching Barney Frank

I was watching Barney Frank speak the other day when they thought the bill was going through. I don't see how he could say what he said with a straight face and I don't understand why the other member didn't break out with laughter.

a different drum
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a different drum 10/01/08 - 12:18 am
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I hope more people will start

I hope more people will start looking into the facts of this Wall Street Bailout for themselves.

a different drum
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a different drum 10/01/08 - 12:22 am
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Marandan -- it is possible

Marandan -- it is possible Wall Street could put some pressure on FOX too -- I am not saying they have, but this is something we should keep in mind.

marandan
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marandan 10/01/08 - 12:23 am
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You know the more I have

You know the more I have really started paying attention to politics, I find that most people who call themselves DEMS are people I could not ever trust. To me it seems like they are all thieves, or takers, and no matter what is done, they find a way to justify any wrongdoing. Bill Clinton, William Jefferson, Cynthia Mckinney, Barney Frank, C.DODD,Marion Barry, Kwame kilpatrick, Jessie Jackson, and many, many more. None of them said I was wrong and for the good of my country I will step down. NONE, NOT ONE. Because the people that make up their party are people of NO integrity or humility, or HONESTY. I truly believe this country is very close to a civl war again.

marandan
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marandan 10/01/08 - 12:26 am
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It aint about race it is

It aint about race it is about right and wrong.

marandan
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marandan 10/01/08 - 12:30 am
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With dems even if you catch

With dems even if you catch them red handed, they will still deny.NO HONOR NO DECENCY NO CONSCIENCE.

marandan
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marandan 10/01/08 - 12:35 am
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Have you heard about ACORN?

Have you heard about ACORN? OBAMA is [filtered word]hole deep into those people. Is there NOONE on the DEMS side that will say this guy is associated with so many shady dealings and people, that we should demand that he not be the nominee for our party. This election, no matter how it ends, is going to destroy the democrat party as we know it.

marandan
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marandan 10/01/08 - 12:40 am
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ANYTHING a DEM does is ok,

ANYTHING a DEM does is ok, but if a rep does anything, the dems are demanding they be removed. Man what a double standard.

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