Date registered: Aug 2005
Location: Lawrence, KS (USA)
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Congress calls Wall Street's bluff, and we lose
Commentary: How rejecting a $700 billion plan cost us $1 trillion
By David Callaway, MarketWatch
Last update: 5:21 p.m. EDT Sept. 29, 2008
SAN FRANCISCO (MarketWatch) -- Congress called Wall Street's bluff Monday, and investors, savers, retirees and employees around the world lost their shirts.
While groups of politicians bickered like schoolchildren over the failure of the House of Representatives to pass Treasury Secretary Henry Paulson's $700 billion bailout plan, the S&P 500 Index plunged to its worst day since the week of the 1987 stock-market crash, wiping out more than $700 billion in the index's market value.
In other words, we all just spent that $700 billion today -- and still didn't get a rescue plan.
You're doing a heckuva job, Congress.
Let's be clear: The fat cats on Wall Street are still rich. And there must be several dozen of them in total. They were worth many millions, and now they're just worth several millions.
But by making this about a bailout of fat cats and not what it clearly was -- an emergency rescue of the global financial system -- Congress imperils the investments, deposits, money markets and life savings of millions of Americans, to say nothing of people around the world.
Is it Election Day yet?
Even the notoriously splintered government of Belgium was able to engineer a rescue of banking and insurance giant Fortis over 48 hours this weekend. But our own representatives, faced with the gravest economic threat in 70 years, took more than 10 days to hash up this rescue plan, and then rejected it anyway.
In total, more than $1 trillion was wiped off the value of the entire U.S. stock market Monday, as measured by the Dow Jones Wilshire 5000 Index. Asian markets will certainly plunge tonight, followed by the European markets Tuesday morning -- and many of the latter suffered their worst losses ever Monday.
In case anyone in the House failed to notice, the constituents affected by this decision reside well beyond the representatives' little districts. Four major European financial institutions were bailed out over the weekend. More will come. Wachovia Corp.'s takeover Monday morning made it just the latest U.S. bank to go down. With no rescue plan in place, even our biggest banks remain under threat.
The markets will bounce back -- perhaps even this week. Another crack at a bailout will be taken in the coming days, most likely. We will get through this, ideally without a painful recession.
But when we finally catch our collective breath and look back, we'll realize this was never about fat cats. The House as a whole missed that completely. Instead, small investors and savers around the world are left to twist in the wind as the systemic failure that till now had been merely theoretical takes place right before our eyes.
At some point, the pain will become deep enough that even Congress will get that message.
Until then, we've finally got an answer as to whose fault it is.
Existing executive-pay contracts will stay in placeAnd there's ANY question about why this thing failed? Barney Frank has the balls to cite "pettiness and hypersensitivity" with regard to house Republicans, and votes FOR something that lets the very same pedophiles hang around the daycare?
In some cases, the bill would require companies limit executive pay, but those limits vary depending on the method by which Treasury purchases a firm's troubled assets, and how much Treasury antes up.
"When Treasury buys assets at auction, an institution that has sold more than $300 million in assets is subject to additional taxes, including a 20% excise tax on golden parachute payments triggered by events other than retirement, and tax deduction limits for compensation limits above $500,000," according to a synopsis of the text of the bill.
While the proposed bill prevents companies from signing new golden-parachute deals with top executives after Treasury gets involved, it does not change the terms of already existing contracts, apparently in an effort to encourage companies to participate in the bailout program.
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