September 30, 2008

Congress Rejects Bailout Plan

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With Congress’ refusal to pass the $700 billion financial bailout bill, the government has yet to come to the rescue of Wall Street.
The failed legislation aimed to help banks by buying up their bad mortgages so that the banks would be more inclined to lend. Many financial firms instructed their employees to lobby to their politicians to pass a solution that would improve their economic condition. As a result of Congress’ failure to pass legislation to alleviate the situation, the Dow Jones industrials had its worst day in two decades, dropping 777 points.
Leaders of the financial market were livid with the government’s decision. Since the immediate effect was drastic, long-term effects of the government’s inaction could be devastating.
“How could this have happened?” said Gordon Charlop, managing director with Rosenblatt Securities, to the Associated Press. “Is there such a disconnect on Capitol Hill? This becomes a problem because Wall Street is very uncomfortable with uncertainty.”
[img_assist|nid=32208|title=Change in Stock Values Yesterday|desc=|link=node|align=left|width=|height=0]Prof. Daniel Benjamin, economics, said that the financial market’s future success depends on restoring the confidence of banks and investors in the market.
“If we went back to being confident, the market recession would probably last six to nine months, but if the market fails at restoring confidence it could be much longer,” Benjamin said. “The main thing with a bill is that it would have reassured a lot of investors and bankers that the government would not let the financial system fail. It is a symbolic act that they were going to do what it takes to restore confidence that is the most important thing.”
Among the 288 congressmen to vote in opposition in of the bill was Representative Maurice Hinchey (D-N.Y.), of the 22nd District, which includes the Southern Tier and Finger Lakes regions. While Hinchey saw positives in the 110 pages of the bill, he thought that it failed to take into consideration the whole picture.
“The bill presented to Congress was an improvement from the original proposal of the Bush administration and U.S. Treasury Secretary [Henry] Paulson, which basically asked to give the money away,” Hinchey said.
The bill that Congress decided to veto, however, did address the restriction of reckless behavior of banks and an increase in oversight from the federal government. When asked about top executives who received large severance packages and left their respective companies before the economic downturn, Hinchey explained how such oversight issues were addressed in the bill.
“At least this bill attempted to control the oversight of this market,” Hinchey said. “It did address the idea of golden parachutes for Wall Street executives.”
Even though Hinchey saw redeeming qualities in the bill, he voted in opposition to the overall strategy of the government. Instead of bailing out the financial market, Hinchey believes the United States government should turn its attention to investment in the nation’s infrastructure.
The argument that the bailout of the financial service sector would not greatly improve the welfare of most Americans, however, is highly contested. Presently, many Americans are trying to take out the money in their banks in the fear that they would otherwise never see it again. While Hinchey does see a need to resolve the problems of the financial market, he believes that the government should also use this as an opportunity to invest in entire U.S. economy.
“By just dealing with the manipulation of the finance market, it doesn’t go far enough,” he argued. “We must attempt to invest in the needs of this economy, in its infrastructure, renewable energy, education and health care. This will generate jobs and reverse the pattern of this administration.”
As for Cornell students, many economics and applied economics and management majors are questioning their prospects. Matthew Goland-van Ryn ’09, an AEM and Biology major who interned at an investment firm last summer, said that neither he nor his colleagues saw any fortuitous signs of bankruptcy.
“They all knew that the market was tough but they thought that the company would be okay,” he said.
Although he never intended to enter the financial services field, he seems to have fortified his plan to go to medical school since the recent market failures.
“Be prepared to do something else for the next couple of years as you keep applying for financial jobs,” Benjamin said.