A Secret Vote for a Shameful Bailout

On this day in economic and financial history...

You may not like the bailout bill that passed during the dark days of 2008. If it angers you, you know whom to blame: the representatives and senators who voted "yea" or "nay" for its passage. All votes were recorded and, in many cases, used against them during later campaigns. This was not the case on Nov. 27, 1991, when the houses of Congress approved a bill bailing out the floundering banking system -- then in the grip of the savings and loan crisis -- to the tune of more than $100 billion.

The House took no recorded vote, leaving 112 representatives to stand in favor and 63 against on the strength of their own principles. The votes of the other 360 representatives were never revealed. In the Senate, only 83 votes were counted. It was only because Minnesota Democrat Paul Wellstone insisted that the Senate record its votes that we have a record of those 83 "yeas" and "nays." Cowardly House Majority Leader Richard Gephardt, D-Mo., said of the vote, "This is an unpleasant task, but I hope everyone will remember that we're not bailing out anyone but our constituents, who have their deposits in institutions."

Constituents, indeed.

By this time, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) had recovered from a brief bear market the previous year and had risen 23% since bottoming out in late 1990. The savings and loan crisis, unlike the 2008 financial crisis, had a fairly muted effect on the market. A year after the secretive vote, the Dow had gained another 13%. After that, it was off to the races.

It is worth noting, however, that Congress stripped all banking-deregulation recommendations from the George H. W. Bush Administration from its final bill. In the words of The New York Times, the Bush Administration wished to end the "restricting [of] banks and insurance businesses from being owned by industrial enterprises, like General Motors (NYSE: GM  ) and IBM (NYSE: IBM  ) The Administration argued that banks could be strengthened by repeal of these laws." Treasury Secretary Nicholas F. Brady was highly critical of Congress for its removal of these provisions. It's likely that their implementation would have accelerated the onset of a major financial crisis like that of 2008, but not substantially; interstate banking deregulation was enacted before the last thrift failed.

It's also worth noting that industrial enterprises have not fared particularly well as financial institutions. GM rapidly expanded its GMAC financial subsidiary (now Ally Financial) after earning approval to form a banking institution with it in 2000. GMAC received $16 billion from the Troubled Asset Relief Program and continues to be the second-most-indebted private enterprise to have used the program, behind only GM itself. General Electric (NYSE: GE  ) , which has a massive financial arm, got $16 billion in precious Federal Reserve liquidity when the central bank acquired GE's commercial paper multiple times at the height of the financial crisis. A loophole in the Temporary Liquidity Guarantee Program also allowed GE to gain government guarantees for $85 billion of its debts. GE Capital used this guarantee to raise $74 billion by the time the market bottomed out in 2009.

I love a parade
The holiday season offers many traditions for retailers to profit from. One of the most transparent (but entertaining) traditions began on Nov. 27, 1924, when Macy's (NYSE: M  ) held its first-ever Thanksgiving Day Parade in New York City. Although it had none of the iconic balloons that later became its trademark, this first parade drew crowds of thousands, many of them children. They all turned out to see Santa Claus, who arrived in a well-appointed parade float and was crowned "King of the Kiddies" above the entrance to the recently opened Macy's on 34th Street, between Sixth and Seventh Avenues.

The New York Times reported on this brilliant paean to holiday consumerism: "When Santa seated himself on the throne he sounded his trumpet, which was the signal for the unveiling of the store's Christmas window. ... The police lines gave way and with a rush the enormous crowd flocked to the window to see Mother Goose characters as marionettes."

In 1927, Macy's began using balloons produced by Goodyear Tire (NASDAQ: GT  ) , but the more elaborate balloons we're familiar with have been made by Aerostar International, a subsidiary of Raven Industries (NASDAQ: RAVN  ) , since 1984. The parade has been broadcast each year on television since 1948, but hundreds of thousands of parade-watchers still line the New York City streets each year to get a glimpse of the increasingly extravagant pageantry.

General Electric has undertaken a huge effort to slim down its bloated financial arm and refocus on its industrial heritage. Will it be enough to propel this venerable company forward through another century? The Fool's best analysts have dug deep into GE's many operations to put together an exclusive premium research service for GE shareholders (and would-be shareholders) to answer this question, as well as the many others that arise when dealing with such a massive company. Want to find out what's in store for GE in 2013 and beyond? Subscribe today for a full year of analysis and updates.


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  • Report this Comment On November 27, 2012, at 12:12 PM, sandyclaws99 wrote:

    I guess any idiot can get a byline on Motley Fool. The "shameful" bailout will end up costing the taxpayers nothing.

    Reagan'sS&L bailout cost taxpayers over $100 billion.

  • Report this Comment On November 27, 2012, at 12:19 PM, TMFBiggles wrote:

    @ sandyclaws99 -

    This article is principally about the savings and loan bailout, which you'd have realized had you read past the headline, and possibly the first sentence. Also, it wasn't Reagan's bailout, since the crisis legislation wasn't passed until the latter half of 1989, during the George H. W. Bush presidency.

    I'm sorry you feel that I'm an idiot, though. I will try my hardest not to disappoint you next time.

    - Alex

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