Despite the fact that the United States House of Representatives voted against the proposed economic bailout package, the Senate and U.S. President George W. Bush aren’t giving up just yet.
On Wednesday evening, the Senate will vote on a new version of the legislation, which will likely include a provision to boost federal deposit insurance on bank accounts to as much as US$250,000, up from $100,000.
“My administration will continue to work closely with leaders of both parties on Capitol Hill,” he said in a speech Tuesday, adding that his advisors will be talking to Congressional leaders about how to move legislation forward when members return to the Capitol on Wednesday.
On Monday, the House voted 228-205 against the US$700 billion bailout package, which aimed to use taxpayer money to purchase distressed mortgage assets from financial institutions, limit caps on the pay and benefit packages of companies who receive government aid, and create an insurance program for banks’ toxic assets.
About two-thirds of Democrats voted in favour while two-thirds of Republicans voted against it. The rescue plan also received little support from the American public, who consider it as a problem affecting just Wall Street.
“In acquiescing to a skeptical Main Street, Congress voted thumbs down on the Wall Street bailout package, leaving the country’s—if not the world’s—financial system exposed to further price declines in the U.S. housing market,” said Jeff Rubin, chief economist at CIBC World Markets.
He explained that the rejection by Congress reflects the chasm that still exists between Wall Street and Main Street as most average Americans haven’t yet been impacted by the credit crisis.
In his speech, Bush tried to emphasize how the Dow Jones industrial average’s 7% decline on Monday would have an impact on American households.
“The dramatic drop in the stock market that we saw yesterday will have a direct impact on the retirement accounts, pension funds, and personal savings of millions of our citizens,” he said. “And if our nation continues on this course, the economic damage will be painful and lasting.”
Americans, said Rubin, are unlikely to support a rescue plan until they feel they are affected by Wall Street’s problems.
“The financial system may not be able tot tread water long enough before Main Street suffers sufficiently to get on board with a package,” he added. “That’s why it is so pivotal that a package come now, before systematic damage is sustained.”