OK, so Congress finally, thankfully passed the Economic Stabilization Act. They approved Treasury Secretary Henry Paulson's request to purchase $700 billion in troubled mortgage-related assets in order to restore critically needed confidence in our credit markets.
But wait, there's more!
Earlier this week, I called the nay-voting members of the House "cowards." Turns out I sold them short: They're profiteers. They saw the financial hurricane coming, and decided that this was a perfect time to get a little extra for themselves. If Home Depot or Lowe's tried this during hurricane season, they'd get prosecuted. But it's cool to profiteer if you're Congress, and that's exactly what they did -- to the tune of $110 billion.
As a reminder, this is different than -- and additional to -- the $700 billion that the original act requested. There is a reasonable chance that the taxpayer will recoup all $700 billion of that money, or more. But this extra $110 billion is gone ... vaya con Dios.
Here are some choice quotes from a few representatives who voted "nay" on Monday but "yea" on Friday:
"We have to act. We have to act now."
"I have decided that the cost of doing nothing is greater than the cost of doing something."
"I may lose this race over this vote, but that's OK with me. This is the right vote for the country."
So apparently they're not cowards -- just latent heroes?
Let's look at some of the heroic items they put into the act while Rome was burning, such as tax breaks for:
- Bicycle commuters
- Disaster victims
- School supplies
- Imported rum (huh?)
- Plug-in electric drives
- American Samoa economic development
- NASCAR racetracks
- Wool fabrics
- Wooden practice arrows
Wow. Some of these ideas may have merit -- but what are they doing here, and why were they used as ransom? The only significant relevant change is the increasing of the FDIC insurance ceiling per account, from $100,000 to $250,000, something that could easily have been done separately.
As our representatives were holding our economy hostage, more damage was done. The stock market swung crazily. It dropped 7% on Monday alone, creating even greater confidence problems for investors and consumers. Even a great non-financial business like Apple (Nasdaq: AAPL ) fell nearly 20% that day (granted, that some of that was partially thanks to downgrades, but still).
Meanwhile, the relatively healthy financial stocks like JPMorgan (NYSE: JPM ) , Bank of America (NYSE: BAC ) , and Wells Fargo (NYSE: WFC ) continued their volatile ways. And this was before the latest round in the Wells vs. Citigroup (NYSE: C ) battle for Wachovia (NYSE: WB ) .
Moreover, the TED Spread reached record levels, and massive levels of economic activity failed to occur. I expected more from our representatives, because they have unique access to the facts and analysis. These damages were plainly foreseeable and avoidable. My expectations were lowered on Monday when they bowed to public opinion. Then they failed to meet my already-near-bottom expectations while proclaiming themselves heroes. Congress held our economy hostage so that they could buy time to profiteer.
Unimpressive, but what else should I have expected?
Well, now at least the real work to stabilize our credit markets and economy can now begin.
Our discussion board on this issue remains lively with opinions, so please come and share yours with us.