A somber President Bush addressed the nation on Sept. 24, warning of a "long and painful recession" if Congress failed to pass the $700 billion bailout, called the Emergency Economic Stabilization Act of 2008, for flailing financial firms proposed by Treasury Secretary Henry Paulson.
After initially rejecting Paulson's plan, the House of Representatives did an about-face Oct. 3, passing the measure by a 263-171 margin - possibly because it was attached to a bill ordering the insurance industry to provide greater mental health coverage, something many members of Congress would likely benefit from.
"We have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country," Bush said shortly after the House vote. "We have shown the world that the United States of America will stabilize our financial markets and maintain a leading role in the global economy."
New World Odor
Well, maybe I'm the one who needs expanded mental health benefits, but how much more of this "stability" can the world economy take? Since the rescue plan passed, the Dow is down 5.1% and the Nasdaq 5.8%. (To learn more, read Why The Dow Matters.)
Across the globe, the situation is even worse. On Monday, London's FTSE 100 slumped 7.9%, the CAC 40 in Paris plunged 9%, the XETRA DAX in Frankfurt fell 7.1% and Russia's RTS index was shut down after it plummeted 20%. The Australian Securities Exchange dropped 3.4%, Japan's Nikkei Exchange dipped 4.3% and Mexico's IPC Index tumbled 9.6%. Instead of a financial solution, how about legislation stipulating that absolute values be used whenever market averages are discussed - perhaps that would restore investor confidence.
Adding to the post-bailout stability on Monday was a third quarter earnings report by Bank of America (NYSE:BAC) - believed to be one of the healthier banking operations - announcing a 68% drop in profit, as well as a plan to raise more capital by cutting the company's quarterly dividend in half and attempting to sell $10 billion of common stock.
Of course, this cheerful news comes just three weeks after Bank of America spent $50 billion to acquire Merrill Lynch (NYSE:MER). "There's some concern they might have bit more than they could chew," Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co., told Reuters at the time of the Sept. 15 sale.
Meanwhile, Richard Fuld, chairman and CEO of Lehman Brothers (OTC:LEHMQ) claimed federal regulators knew the dire condition his firm was in long before its collapse and said he would wonder "until they put me in the ground" why the U.S. government did not offer Lehman the same helping hand it extended to American International Group (NYSE:AIG), Bear Stearns and others.
Given all this, is it any wonder that a recent CNN/Opinion Research Corp. poll revealed that 84% of Americans believe that economic conditions are somewhat or very poor and that nearly six out of 10 believe an economic depression is likely?
Why, it's enough to give one high blood pressure. Luckily, doctors tell me mine is "stable."
To learn more, see The Crash Of 1929 - Could It Happen Again?