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Explainer: Why did the bailout plan fail?

(CNN) — After days of delicate negotiations between U.S. government officials, Treasury chiefs and Congressional leaders, agreement seemed to have been reached Sunday on details of a $700 billion plan authorizing Treasury Secretary Henry Paulson to buy toxic debts from banking institutions to allow them to resume borrowing normally. But the bill failed at the first legislative hurdle Monday as lawmakers in the House of Representatives rejected it by 228 votes to 205.

Why did lawmakers reject the bill?

Many lawmakers, especially on the Republican side of the House, had voiced concerns about the $700 billion cost to U.S. taxpayers, arguing that ordinary citizens were being asked to foot the bill to clean up a mess created on Wall Street. Fortune magazine’s Washington bureau chief Nina Easton said that many lawmakers, facing re-election in November, feared a backlash among voters if they backed they plan.

This legislation is giving us a choice between bankrupting our children and bankrupting a few of these big financial institutions on Wall Street that made bad decisions, said Republican Congressman John Culberson. Other Republican free market advocates argued that the bill would have been a blow against economic freedom.

On the Democratic side, there were concerns that the bill did not provide enough protection for taxpayers. Others said the legislation had been rushed through without due consideration. Like the Iraq war and Patriot Act, this bill is fueled by fear and haste, said Democrat Lloyd Doggett. Watch Republicans lay the blame at Democratic feet

What are the consequences?

Ahead of the vote, backers of the bailout plan had argued that urgent action was necessary to underpin the foundations of the entire U.S. economy. Billionaire Warren Buffett said that failure to agree a plan would leave the U.S. facing the biggest financial meltdown in American history. In a televised address, U.S. President George W. Bush said that without immediate action by Congress, American could slip into a financial panic and a distressing scenario could unfold.

But the immediate consequences were felt most sharply in the financial markets, already badly bruised by weeks of heavy losses. Approximately $1.2 trillion had been wiped off the market value of U.S. stocks by the close of Monday trading with the Dow Jones index suffering its worst ever points loss, losing 778 points — a seven percent slide. Asian markets were also down and European markets mixed Tuesday.

What happens next?

Treasury Secretary Henry Paulson says he will continue to work with congressional leaders to draft a plan acceptable to lawmakers and members of the House will likely be asked to vote again before the end of the week — possibly on an amended plan including more protection for taxpayers’ money. Those who voted against the plan can expect to be courted intensely in coming days.

White House spokesman Tony Fratto said: We think the mechanisms in this plan were the best to deal with the crisis that we are facing. The core of this plan we think will solve the problem; it was big enough and substantial enough in terms of what we were trying to do… So this plan really needs to get done to give the Treasury Secretary the tools he needs to prevent our economy from slipping… The facts are that America’s credit system is broken and it will be broken until we take the steps to fix it.

How does this affect the banks?

The financial landscape has already been radically transformed by the collapse in U.S. house prices and the subsequent credit crunch with investment bank Lehmans Brothers going bankrupt, Merrill Lynch being bought out by Bank of America and the U.S. government intervening to prop up mortgage lenders Fannie May and Freddie Mac and insurance giant AIG.

The failure of the bailout plan will only undermine confidence in the banking system further, pushing more banks into trouble as customers withdraw their money. They have to pass some sort of bill otherwise soon it’s going to get down to the point where people actually take money out of the bank and put it in their mattress, trader Wayne Carson told CNN. Watch a Wall St. veteran tell why he thinks the bailout is vital

How does this affect the rest of us?

The credit crunch has already affected the entire economy with Main Street already feeling the squeeze from rising fuel prices, rising food prices and rising unemployment. Many economists fear the U.S. is heading for recession. With banks unable or unwilling to lend to each other until the credit crisis eases up, many companies may be unable to borrow the money they need to pay their weekly bills, including salaries. The likely consequence is further job losses.

This is not about suits on Wall Street making their salaries, this is about financial institutions who loan money to your bank so that you can get a loan or you can buy a car or you can get a mortgage or you can get a credit card… this is our financial system that is freezing up, said CNN senior business correspondent Ali Veshi.

Should I panic?

found here.

Lawmakers quickly point fingers after bailout fails

WASHINGTON (CNN) — Democrats and Republicans on Capitol Hill immediately blamed each other for the failure of a $700 billion bailout package in the House on Monday.

House Minority Leader John Boehner, R-Ohio, said there would be no revote Monday on the bill aimed at buying up bad mortgages and stabilizing the faltering economy because House members had left the Capitol.

It was unclear in what form the congressional leadership would bring the bill back to the House floor.

The stock market immediately dipped hundreds of points after it became apparent that the bill would fail. The Dow closed down 777 points at the end of trading Monday, a record plunge. Watch blocked bailout win or loss?

The package, which was backed by both the Democratic and Republican congressional leadership as well as President Bush, failed in the House by a vote of 228-205. See roll call of how House members voted (PDF)

My sense is that this exact same bill couldn’t pass, said Missouri Rep. Roy Blunt, the No. 2 Republican in the House. But this bill could be the basis for final congressional action. They’d have to expect some changes.

Nearly 60 percent of Democrats voted for the bill, and about a third of Republicans supported it.

House Republican leaders blamed Nancy Pelosi, the Democratic Speaker of the House, for the bill’s failure, saying she had scuttled a bipartisan compromise with a partisan speech shortly before the vote. Pelosi started her speech by citing the Bush administration’s failed economic policies — policies built on budgetary recklessness, on an anything-goes mentality with no regulation, no supervision and no discipline in the system.

I do believe that the vote could have succeeded, Boehner said in a news conference. But the speaker had to give a partisan speech … that poisoned our caucus.

Rep. Steny Hoyer, the No. 2 Democrat in the House, rejected the Republicans’ accusation as absurd.

Rep. Barney Frank, the House Democrats’ main negotiator on the package, called the Republicans’ finger pointing an excuse.

Because somebody hurt their feelings, they decided to punish the country? Frank said. I don’t believe they had the votes. They are covering up the fact that they don’t have the votes.

Rep. Michele Bachmann, a Minnesota Republican, denied that the bill’s opponents had voted against it because of hurt feelings. I want to assure you that is not the case. We are not babies, sucking our thumbs, she said.

Clearly it is important to get it done quickly, but it is more important to get it done correctly, said Republican Rep. Jeb Hensarling of Texas.

After the vote, President Bush was disappointed that the House failed to pass the bailout, saying, We put forward a plan that was big because we got a big problem. Watch a White House spokesman describe the president’s reaction

Our strategy is to continue to address this economic situation head on. We’ll be working to develop a strategy, Bush said.

Bush is scheduled to speak on the bailout plan Tuesday at 8:45 a.m. at the White House.

The Senate had planned to take up the bill after the House had passed it, but now it is unclear how the senators will proceed.

Democrats are doing our part to improve the administration’s flawed plan, but we will need the support of more Republicans to get this done, Senate Majority Leader Harry Reid, D-Nevada, said in a statement.

With the stock market recording its largest point drop ever in the aftermath of this vote, it has never been more clear how important it is to put politics aside and come together to stabilize our economy for all Americans, Reid said. I hope House Republicans will reconsider their vote and decide to put country first.

After the House vote, Sen. Mitch McConnell, the Republican leader in the Senate, said lawmakers were going to stay here until we get this job done, but he admitted he could not say how to push a package through.

No action is not an answer, McConnell said.

The House will not be in session Tuesday and Wednesday, but behind-the-scenes work will continue until it reconvenes Thursday.

Sen. Judd Gregg, the lead Republican Senate negotiator on the deal, said there would be real consequences if Congress did not approve legislation. iReport.com: Share your thoughts on the bailout

If we don’t act … a lot of people are going to lose their jobs, he said.

When the gavel came down, the members on the House floor were nearly silent. Democratic members immediately met in Pelosi’s office after the vote. Republican members went into the office of Boehner, the top Republican in the House.

While thanking Treasury Secretary Henry Paulson for negotiating on the bill, Pelosi said on the House floor that the Democrats had insisted that the bill protect the American people and Main Street from the meltdown on Wall Street.

After the vote, Boehner said, Americans are angry, and so are my colleagues. They don’t want to have to vote for a bill like this, and I understand that. Watch Boehner blame Pelosi

I think that we need to renew our efforts to find a solution that Congress can support. I do believe that we could have gotten there today had it not been for this partisan speech that the speaker gave on the floor of the House, he said.

But Democrats dismissed the Republican complaints, saying the Republican leadership failed to persuade their members to support the bill.

They lost 2-1 on their own side, voting against their president, their presidential candidate and against every leader in their own party, one Democratic source said.

Pelosi said the Democrats lived up their side of the bargain.

We’ve entered into those conversations in a spirit of bipartisanship, with the understanding that each side would have half of our votes to pass the bill, she said. Watch a Wall Street trader say they need the bill

When the legislation came to the floor, the Democratic side more than lived up to its side of the bargain, she added. While the legislation may have failed, the crisis is still with us. Watch Pelosi say the Democrats delivered

Rep. Barney Frank, a Massachusetts Democrat who was a key negotiator of the bill, said Republican leaders were blaming Pelosi because they were embarrassed that they failed to get a majority of the Republicans to vote for the bill. Watch Frank say the GOP ‘punished’ the country

There’s a terrible crisis affecting the American economy. We have come together on a bill to alleviate the crisis, Frank said. And because somebody hurt their feelings, they decide to punish the country? I mean, I would not have imputed that degree of pettiness and hypersensitivity.

Before the vote, many House Republicans expressed opposition to the bill, saying it departed from free-market principles. Republican congressional aides also said calls from constituents were running 10 to 1 against the legislation.

The relevant test is, when you look at the good in the bill, when you look at the bad in the bill — does it take America in a direction that you believe America should go? said Rep. Jeb Hensarling, a conservative Texas Republican, before the vote. By that test, Madam Speaker, I will vote no on this legislation.

I fear that ultimately it may not work. I fear that it is too much bailout and not enough work out. I fear that taxpayers may end up inheriting the mother of all debts, he added.

Another Republican called on members to vote their conscience.

found here.

Asian markets fall on U.S. bailout failure

(CNN) — Asian and Pacific stock markets slid downward Tuesday after the U.S. House of Representatives failed to adopt a Wall Street bailout measure, triggering the largest point drop in U.S. market history.

The Japan’s Nikkei Index was down 4.64 percent while the Australian Securities Exchange fell 3.63 percent. The Hong Kong exchange dropped 3.36 percent.

found here.

Campaign targets teen prescription drug abuse

NEW YORK (CNN) — A dozen old family photos were strewn across the table as Gary Neal picked them up one by one.

The attorney from Tulsa, Oklahoma, reminisced about his teenage son, Harrison, who died two years ago at the age of 17 after fatally mixing over-the-counter cold medication and someone else’s prescription painkillers.

There’s nothing worse as a parent than to see your kid on a gurney being rolled out of your house … and placed in a hearse, Neal, 61, lamented. There’s nothing worse than that.

Hoping to get the word out that in the wrong hands, prescription drugs can be deadly, Neal joined forces this year with the New York-based Partnership for a Drug-Free America.

We have 20 percent of our teenagers, one in five, who have admitted to abusing a prescription medication, said Steve Pasierb, president of the organization. We know that is based on their attitudes and beliefs that this is safer.

Pasierb’s group, along with drug maker Abbott, launched an anti-drug campaign this summer called Not in My House. Health Minute: Watch more on one father’s quest to raise awareness

The Internet-based educational campaign is aimed at educating not just teens but their parents about the dangers of prescription medications.

This is unlike any drug issue we’ve ever dealt with, Pasierb explained. Supply can be controlled in our own house. We’re not talking about Afghanistan or Colombia. We’re talking about your house and my house.

Neal learned that his son started experimenting with drugs such as marijuana when he was 15.

It was one of those things I wasn’t happy about, but I didn’t think it was the end of the world.

Neal restricted Harrison’s after-school activities, but he said that when the behavior continued, he ordered his son to submit to home and professional drug tests. He also enrolled Harrison in an outpatient drug treatment program the summer before his death.

Neal suspected that the problems weren’t behind them, but he was unaware that the teen was abusing prescription drugs.

I don’t think he knew that his abuse of these prescription drugs would be deadly, Neal added.

That’s part of the problem being addressed by Pasierb’s group.

It’s this belief that they’ve found something safe. ‘Grandma uses it. I can take a couple from her bottle,’ Pasierb explained. When they’re not used with a prescription and the way they are intended, prescription drugs can be every bit as dangerous, every bit as addictive, every bit as deadly as illegal street drugs.

What’s more, Pasierb said, Over the past eight to 10 years, adolescent substance abuse, teen drinking and teen smoking have all been in a steady decline. The only thing that has been resistant to that progress has been prescription drug abuse.

Pasierb put part of the blame on parents. The drugs of choice when they were young tended to be illegal ones: marijuana, heroin, cocaine.

This idea of purposely abusing prescription drugs didn’t go on when they were teenagers themselves, he said.

Part of the Not in My House campaign appeals directly to parents to take action starting with their own medicine cabinets.

When we get them the message, a light bulb goes off and they are immediately mobilized, Pasierb said. They go home, they clean out their medicine cabinet … and they talk with their kids.

Specifically, the Not in My House campaign recommended that parents take an inventory of prescription medications at home, counting pills left in the bottle or package after every use.

Medications should be stored in a safe place that is not readily accessible to everyone in the house.

Finally, leftover or expired prescription pills should be disposed of properly.

Experts cautioned not to flush medications down the toilet where they could harm the water supply but to place drugs in a an opaque container with something unpleasant mixed in, such as cat litter. The bottle should be sealed and placed in the trash.

found here.

World stocks slide on bailout doubts

LONDON, England (AP) — World stock markets fell Monday amid a flurry of government bank rescues in Europe and investor skepticism about the effectiveness of a tentative deal in Washington on a $700 billion bank bailout to stabilize the financial system.

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.

There’s an increasing realization that the cleanup and the mending of all that’s gone wrong is going to take an extended period to work through, and we’re going to see an extended recovery period, said Jamie Spiteri, senior dealer at Shaw Stockbroking in Sydney.

Britain’s FTSE 100 fell 4.16 percent, Germany’s DAX index fell 3.87 percent, and France’s CAC-40 fell 4.90 percent.

In Asia, Tokyo’s Nikkei 225 index closed down 1.3 percent at 11,743.61, and Hong Kong’s Hang Seng Index shed 2.1 percent to 18,286.90.

In late morning New York trading, the Dow fell 289.68, or 2.60 percent, to 10,853.45 after having been down more than 350.

The markets were responding in part to news that Dutch-Belgian banking giant Fortis NV was partially nationalized with a 11.2 billion euros ($16.4 billion) rescue from the governments of Belgium, the Netherlands and Luxembourg, after investor confidence in the bank disappeared last week.

They’re worried that another fire is starting in Europe, said Castor Pang, an analyst at Sun Hung Kai Financial in Hong Kong, referring to the Fortis news.

In other activity across Europe, the British government nationalized mortgage lender Bradford Bingley, taking over the bank’s 50 billion pound ($91 billion) mortgage and loan books. In a similar move, the Icelandic government bought a 75 percent stake in Glitnir, the country’s third largest bank, for 600 million euros ($878 million) to ensure broader market stability after it suffered liquidity issues.

In Germany, the country’s second biggest commercial property lender, Hypo Real Estate Holding AG, said it had secured a multibillion euro line of credit from several banks.

The banking turmoil across Europe comes ahead of a vote by U.S. lawmakers on a $700 billion public bailout of the ailing financial industry. After days of intense talks, the White House and Congressional leaders agreed Sunday to the bailout after lawmakers insisted on sharing spending controls with the administration of President Bush.

The fact the funds won’t be released in one lot but instead a series of tranches is certainly detracting from its appeal and this, combined with the very visible scars of the credit squeeze, will again weigh on sentiment, said Matt Buckland, a dealer at CMC Markets.

The biggest U.S. bailout in history, which goes to the House for a vote Monday and to the Senate later in the week, would give the administration broad power to use taxpayers’ money to purchase billions of home mortgage-related assets held by cash-starved financial firms.

But even if the plan helps stabilize credit markets, the outlook for the U.S. economy remains grim, with unemployment at a five-year high of 6.1 percent and expected to climb higher. That’s likely going to weaken demand for exports from Asia and Europe.

Furthermore, there are plenty of banks still in trouble, and it may take time before the bailout plan helps them.

found here.