Congress is wary of the push to bail out Wall Street
Lawmakers are watching the stock market as an indicator of whether to buy Bush's plan.
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The market reaction to the ups and downs of negotiations over the bailout hovers over negotiations this week like a Greek chorus – or, as one congressional aide put it, a sword of Damocles.
The narrative runs something like this: Last week on Monday, the market drops 504.48 points, reacting to a failure of the Federal Reserve to offer Lehman Brothers a buyout. It plunges 449.36 points on Wednesday, after the $85 billion bailout of insurance giant American International Group (AIG) "rattles" investors.
But the market rebounds 410.03 points on Thursday, after news leaks that the Treasury Department is about to propose a $700 billion bailout to purge toxic assets from US credit markets. On Friday, markets jumped another 368.25 points, as Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke launched talks over the plan on Capitol Hill. They warned of dire consequences if Congress did not move on the plan this week.
In usual times, the four-page plan with its 12-digit price tag, including immunity from court challenges, would have been a nonstarter on Capitol Hill. But the prospects of another market meltdown if Congress balked at the bill put lawmakers on both sides of the aisle on high alert.
"Once the secretary of the Treasury and the chairman of the Federal Reserve say to you: 'If you don't do this, there will be chaos'; then if you don't do this, there will be chaos – even if there wasn't going to be before," said Rep. Barney Frank, chairman of the House Financial Services Committee in comments to reporters off the floor of the House on Monday.
"Once they surfaced [details of the bailout plan], the options get limited, because now we're not simply not doing it, we're refusing when they say it's essential," he added.
By end-of-day on Monday, the market had dropped 372.75 points, over reports that Congress was balking at the bill. On Tuesday, markets dropped another 161.52 points after Secretary Paulson and Chairman Bernanke faced congressional critics for the first time in a public hearing.
But it wasn't a rout, and critics of the bill took heart that the markets were giving them more time.
"The stock market dropped significantly, then it went up on the basis of what appeared to be good news on a bailout," said Sen. Ben Nelson (D) of Nebraska. "We're being pushed to do it quickly, and my colleagues and I want to be sure it's done right."
Much of the pushback on the bailout plan this week came from the Republican side of the aisle. GOP conservatives balked at the size of the bailout and the enormous new clout it gave to a federal government that many of them had campaigned to shrink. Republicans complained that the Bush administration had not kept them informed last week – and left them more vulnerable in upcoming national elections.