Colour this the nightmare scenario for George Bush and the American political establishment. The American Congress has reached a total stalemate on the passage of the $700 billion bailout of Wall Street. At this hour, the bill has been technically defeated, a development which has caused the Dow to sag more than 500 points and the TSX to plunge over 800 points.
This comes just hours after three more banks failed – one in the US, one in Britain and another in Europe. Without the bailout, American leaders are warning of the possibility of Depression-like consequences, including the failure of dozens, perhaps more than a hundred, banks.
Congress is paralyzed at the moment, as members horsetrade in the corridors and hallways, with the White House desperate to find enough votes to get this deal done. With the US Presidential election less than 40 days away, this has the potential to be a game-changing development of historic proportions, virtually guaranteeing the defeat of Republican John McCain, and seriously hobbling the coming presidency of Barack Obama.
If Congress does not pass this bill when it comes before the legislature once again, the market drop seen thus far will pale in comparison to the consequences at the end of the day.
From the Globe and Mail, and wire services:
Mr. Bush and his economic advisers, as well as congressional leaders in both parties had argued the plan was vital to insulating ordinary Americans from the effects of Wall Streetâ€™s bad bets. The version that was up for vote Monday was the product of marathon closed-door negotiations on Capitol Hill over the weekend.
â€œWeâ€™re all worried about losing our jobs,â€ Rep. Paul Ryan, R-Wis., declared in an impassioned speech in support of the bill before the vote. â€œMost of us say, â€˜I want this thing to pass, but I want you to vote for it â€” not me.â€™ â€œ
With their dire warnings of impending economic doom and their sweeping request for unprecedented sums of money and authority to bail out cash-starved financial firms, Bush and his economic chiefs have focused the attention of world markets on Congress, Mr. Ryan added.
â€œWeâ€™re in this moment, and if we fail to do the right thing, Heaven help us,â€ he said.
From the Wall Street Journal:
Investor sentiment on Monday also suffered a blow from aggressive selling in European markets after four financial institutions there sought rescue plans. Three governments bailed out Fortis, the U.K. government nationalized mortgage lender Bradford & Bingley, Germanyâ€™s Hypo Real Estate Holding was rescued by a consortium, and Iceland stepped in to save a local bank. All major European indexes were down more than 4% , with financial stocks leading declines.
The troubles in Europe sent the dollar rallying against the euro and the British pound. The U.S. Dollar Index, which measures the greenbackâ€™s value against a basket of six overseas denominations, rose 0.7%.
Oil futures dropped slid almost $8, trading under $100 a barrel in New York as fears about slowing demand due to global economic weakness gripped the commodity markets. The broad Dow Jones-AIG Commodity Index slid more than 4%.
Analysts said the flurry of developments around the world is confirming fears that the global financial contagion is likely to spread further before any recovery. â€œThereâ€™s an increasing realization that the cleanup and the mending of all thatâ€™s gone wrong is going to take an extended period to work through, and weâ€™re going to see an extended recovery period,â€ said Jamie Spiteri, senior dealer at Shaw Stockbroking in Sydney.
Well, it looks like there will be no further voting in Congress today – at least, that’s the buzz. Too dangerous. Too much risk of another failure. Stakes far too high.
The immediate consequences are unknown, but it would appear this development will accelerate the financial meltdown currently taking place. Given current events, consumers might well expect higher borrowing costs, just as homeowners face stiffer mortgage costs and new home buyers encounter a cold shoulder from bankers. In our modern world, credit is the lifeblood of commerce, and the failure of this bailout is potentially monumental.
So, are there consequences for Canada? For our election? For the government?
The coming few days will tell, of course, but the fact remains we are vulnerable. As detailed in the post below, the current administration has not taken defining steps to safeguard Canadians.
The middle class is at risk. Will it notice in time?