The House of Representatives will vote Friday on the $700 billion bailout plan proposed by the Bush administration.
The Senate passed the bill Wednesday after several alterations were made, including a government ownership stake in companies that would create taxpayers benefits if stock values rise. The fate of the financial plan now lays in the hands of the 435 representatives and President Bush’s signature of the bill.
First proposed by the Bush administration Sept. 19, the bill suggests the government spend $700 billion dollars to buy up mortgage-backed stocks, whose value has dropped drastically in the recent months.
The House of Representatives rejected a draft of the bailout Monday afternoon, after a slim 228-205 vote. A Sept. 29 New York Times article reported that opponents of the bailout said the bill was not well planned and would risk taxpayers’ money in bailing out the financial elite who made poor decisions.
After the House of Representatives initially rejected the bailout, Treasury Secretary Henry M. Paulsen worked with Congressional leaders to make minor changes to the plan before re-submitting it to the Senate and House. The plan was placed before the Senate Wednesday evening and was widely supported by a vote of 74-25.
Miami University economics professor Thomas Hall said he believes the bill would be beneficial for the American economy.
“I think it is a step in the right direction,” Hall said. “Clearly there are some serious problems in the financial sector and what the government is trying to do is make things better.”
The plan is relatively complicated, he said, as it stages the single largest government intervention into the private sector.
“You’ve got all the financial institutions that issued mortgage loans,” Hall said. “A lot of them have gone into default, partly because the values of houses went down. The government is planning on jumping in and buying the mortgages to drive the prices back up.”
Alan Kyger, Oxford economic development director, said the government should act to protect the citizens in the long run.
However, he does recognize why Oxford and Butler Country residents are hesitant to embrace the bill.
“I think a lot of these people are really frustrated and fed up with the leaders of these institutions that are making millions of dollars and running them bankrupt,” Kyger said. “Why are we going to bail out these companies that ran (into) the ground and now they are going to get off scot-free?”
The American financial market has been struggling for more than a year, and after the House of Representatives rejected the earlier draft of the bill, the Dow Jones Stock Exchange dropped 777 points, the worst single day drop in 20 years, according to the New York Times.
However, many economists worry that the market could only get worse if action is not taken.
According to Hall, the American economy does look as if it is heading into a recession. Hall said a recession occurs when the economic output of the United States decreases, which has not happened since 2001.
“A mild recession is fairly easy to recover from, but a serious one could take a long time,” Hall said. “No one knows if we are going into a recession or how bad it will be-that’s the million-dollar question. But, we do know that several European countries, including Britain, are already in recession … The bailout is important to preventing a recession or (if we are already in a recession) to making it mild.”
Kyger said action needs to be taken, even if citizens are initially opposed.
“I think the sentiment people have is that they don’t want taxpayers to support it, but if the taxpayers don’t support it, (they’re worried) they going to see a drastic loss of savings account and retirement funds,” he said.
Minority leader John Boehner (R-West Chester) also stated in a press release Sept. 21 that he is attempting to protect the taxpayers’ interest.
“We must protect taxpayers and ensure that any funds generated by this proposal will be applied to the general fund to reduce our federal budget deficit,” a statement issued by the representative said.
Hall said some people are just starting to grasp the effects of the economic situation.
“This is the biggest financial mess the country has been in since 1930’s,” he said. “Nobody knows how bad it is out there. They’re just now starting to get a picture.”