The Senate on Wednesday did what the House of Representatives failed to do on Monday--pass a bailout bill.
Nearly three-fourths of Senators passed the bill late Wednesday. The House is scheduled to take up the bill later this week, though it is expected to be a tougher fight there.
Meanwhile, the total cost of the bill went up significantly in that two-day period. That's because the bill passed by the Senate includes a variety of other measures, including billions in tax cuts, along with authorization for the Treasury department to take $700 billion off the books of financial institutions.
Among the other notable inclusions is a mental health parity bill that calls on companies that offer health insurance to cover mental health issues as they would other types of medical conditions.
A number of businesses, including Microsoft, have been calling on the House to reconsider its actions. CNET readers, not so much. According to our very unscientific poll, nearly two-thirds of readers thought the house was right to vote down the bill.
Once again, I put a lot of the blame for the unpopularity of the bailout on the way it has been described. I still think the consequences are not being talked about in ways that people can relate to.
I talked to a friend of mine who is in school. His student loans have been tied up for weeks. He thought it was a bureaucratic issue, but more and more it's looking like the lender isn't processing the loans for him or his classmates. We're seeing this reflected in other ways, such as car dealers who can't replenish their inventories (a new study says one in five may fail) and small businesses and start-ups that find themselves unable to get the capital they need.
We can and should debate whether we as a society take on too much debt and rely too heavily on credit. But I don't think we can afford to just turn off the spigot after running the tap at full blast for decades.
The New York Times also has a great piece showing how the credit crisis is harder to see--and giving the backstory on what's been happening behind closed doors.
I'm going to try to briefly accomplish in a few paragraphs what it seems to me our government has completely failed to do in this financial crisis.
No, I don't have $700 billion of my own to shell out. But to me, Congress' failure came not today on the House floor, but over the past week as both elected officials and members of the administration failed to translate the crisis into terms that have meaning for everyday Americans.
I've heard the phrases "Main Street" and "Wall Street" a lot, but what I haven't heard is plain explanations of what credit really means and how essential it is to our system of doing business.
Here goes.
If the credit markets should freeze up--which many say is happening and will continue without massive intervention--everyone that borrows money will face a cash crunch. That means companies that take advantage of short-term loans to get by won't be able to buy raw materials or make payroll. Even businesses that don't need short-term capital may defer purchases to preserve capital.
If even banks are having a hard time getting money, what does that say for the small and midsize business? The Wall Street Journal had a story on Monday on how companies like McDonald's may face a squeeze as their franchisees are unable to get loans to purchase or upgrade stores. I suspect that is just one visible example of a growing issue for businesses across the country.
We are stuck trying to move forward with new loans--essentially to keep the economy moving--while dealing with clearly bad ones of the past. While much of the attention has focused on concern over home loans, there are also construction loans and business loans that are at risk of default, risks that grow as those businesses find themselves essentially shut off from getting any new capital, extending the vicious circle.
You don't have to take it from me.
Here's C.H. Low, CEO of social-networking software start-up Orbius and a serial entrepreneur.
"When financial markets don't function well, the ramification is broad," he said in an e-mail interview on Monday. He said he is disappointed that the bailout is so misunderstood. Even the term bailout, he said, is a misnomer.
"This is an asset purchase, not a 100 percent bailout expense to taxpayer," he said. "There is risk but also possibility of making a profit. Government's main function is to do things that private sector cannot handle. This Market Stabilization Bill...is as necessary as having an Armed Forces to defend the country."
Low noted that the main beneficiary is not Wall Street.
... Read moreThis post was updated several times throughout the afternoon with more details and comments, and to reflect market changes.
The Dow Jones Industrial Average closed down 777.68 points Monday after the House of Representatives voted against a financial industry bail-out bill. (Click to enlarge.)
(Credit: Yahoo Finance)Shares of technology companies took a beating on Monday as the House of Representatives failed to pass a bailout plan for the financial sector.
The House voted down the $700 billion plan, 228 to 205, with two-thirds of Republicans and a significant number of Democrats casting "no" votes.
When the dust settled at the end of the trading day on Monday, the Dow Jones index was down more than 777.68, a record point decline, with the index down nearly 7 percent from Friday. The CNET Tech index closed Monday at 1375.64, a one-day drop of more than 107 points, or nearly 7.25 percent.
News.com Poll
The S&P 500 Index dropped 106.46 points, or 8.8 percent, to close at 1,106.55, while the tech-heavy Nasdaq Composite Index dropped 199.61 points, or more than 9 percent, to close at 1,983.73--the first time it dipped below 2,000 since 2005.
Among the hardest hit individual stocks was Apple, which also was hit with a pair of analyst downgrades. Shares of the Mac and iPhone maker closed at $105.26, down $22.98 or almost 18 percent. Also hard-hit were the stocks of chipmaker AMD, which was down nearly 17 percent percent, while Google dropped more than 11 percent to close at $381.
Bellwethers such as Hewlett-Packard, Intel, and Microsoft were all off more than 5 percent. One of the narrowest percentage losses was IBM, which was still off more than 4 percent, to $114.46
Longtime technology analyst Ashok Kumar, of brokerage Collins Stewart, said the macroeconomic concerns will weigh heavily on the technology industry, which is still perceived as a discretionary expenditure for both consumers and businesses.
"Until these clouds clear everybody is going to be in a bunker mentality," he said. "The hope is that six months out or nine months out the clouds have cleared.... but near term obviously the outlook is extremely cloudly."
Popular sentiment on Wall Street, he said, is that the government's inaction amounts to "rearranging the deck chairs on the Titanic."
Microsoft, Google, Intel and Yahoo representatives all declined to comment on the market plunge. An Apple representative was not immediately available for comment.
Members of Congress left Monday without scheduling any sort of re-vote, as many aides and lawmakers headed out early for the Jewish New Year, which begins at sundown. A revised bill or new vote could come later in the week, pundits said.
With no bill to tout, Congressional leaders shifted to the blame game. Minority leader John Boehner, the Ohio Republican, expressed frustration that the bill didn't pass, but shifted blame to the Democrats.
"Congress has failed to act," Boehner said. "I do believe that we could have gotten there today, had it not been for the partisan speech that the speaker (Nancy Pelosi) gave today."
Democrats, meanwhile, blamed Republicans.
"The administration impressed upon us the seriousness of (this crisis)," House speaker Nancy Pelosi told reporters. "We delivered on our side of the bargain. Clearly that message has not been received yet by the Republican caucus."
Pelosi, a California Democrat, said she will try and reach out to Republicans to resolve the issue.
"Where we go from here is we still have those concerns about everyday Americans," Pelosi said, referring to the reach of the credit crisis. "We want to insulate them from that. We want to protect them from that."
In a televised statement, President George W. Bush said that he was "very disappointed" in the failure of Congress to pass a bill. "We'll be working to develop a strategy that will enable us to continue to move forward," he said.
U.S. Treasury Secretary Henry Paulson later touted the bailout plan he worked on with congressional leaders as one that "gave us the tools we needed to protect the American people." He further expressed his commitment to coming up with some sort of rescue plan that works, "as soon as possible."
"We've got much to do, and this is simply too important to simply let fail," he said.
CNET News' Stephen Shankland and Daniel Terdiman contributed to this report.
The tech-heavy Nasdaq Composite Index dropped 199.61 points, or more than 9 percent, to close at 1,983.73--the first time it dipped below 2,000 since 2005.
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