By JULIE HIRSCHFELD DAVIS and ANDREW TAYLOR, Associated Press Writer
WASHINGTON - The Senate pushed toward passage Wednesday of a $700 billion financial industry bailout, and opposition to the package among House Republican conservatives appeared to be softening as well, thanks partly to a provision to increase insurance for people's deposits.
Congressional leaders from both parties said they were hopeful that a new version of the rescue plan could be cleared late this week despite its stunning House defeat on Monday that sparked a historic stock sell-off. House Democratic leaders tentatively planned a Friday vote.
One House Republican who joined two-thirds of GOP lawmakers Monday in voting "no" indicated he was reconsidering. Others were also said to be pondering a switch.
Rep. John Shadegg of Arizona, a leading conservative who voted no on Monday, told a Phoenix radio station Wednesday that he'd be "inclined to vote for the bill" if it raised the cap on federal deposit insurance and changed a rule that forces companies to devalue assets on their balance sheets to reflect the price they can get on the market.
Rep. Steve LaTourette, R-Ohio, when asked if was ready to switch from no to yes, said: "Not yet, but it's getting there."
The legislation essentially would allow the government to buy bad mortgages and other devalued assets held by troubled financial institutions. If successful, advocates of the plan say, that would help lift a major weight off the already sputtering national economy and benefit companies large and small as well as individual Americans.
The revised package to be voted on in the Senate also would add $100 billion in tax breaks for businesses and the middle class besides temporarily increasing the deposit insurance cap from the current $100,000 to $250,000. Meanwhile, the Securities and Exchange Commission has said it is easing the accounting rules in some cases.
In a statement Wednesday, Rep. John Boehner, R-Ohio, the minority leader, called both "a victory for House Republicans," although some Democrats have backed the FDIC move.
Congressional leaders said the changes should improve the package's chances — a message they hoped wouldn't get lost on a convulsive Wall Street. Stock prices were basically flat by late afternoon, as investors awaited news on the economic rescue legislation.
Some also saw heightened chances of passage based on a flood of e-mails, calls and letters from constituents chiding Congress for inaction on the financial crisis. The feedback indicated greater public acceptance of the measure — if not a collective embrace — by voters about five weeks before the elections.
House Minority Whip Roy Blunt, R-Mo., said calls and e-mails to congressional offices that were running about 90 percent against the measure earlier now are coming in about a "50-50" pace.
Democratic presidential nominee Barack Obama and his GOP rival, John McCain, planned to fly to Washington for the Senate vote, as did Democratic vice presidential nominee Joe Biden, and the White House continued to lobby hard, both publicly and privately.
At the daily briefing Wednesday, White House spokesman Tony Fratto took the unusual step of citing The New York Times, as well as other newspapers across the country that carried stories on the tightening credit squeeze on small businesses, municipal projects and jobs. "It is affecting real Americans out there," he said.
Officials in both parties predicted the measure would pass the Senate by a wide margin.
Behind the scenes, the president was conferring with Treasury chief Henry Paulson and Federal Reserve Chairman Ben Bernanke to get an update and to plot strategy.
Spokesman Fratto called the increased deposit insurance "an important improvement" to the bill, and also welcomed the added tax breaks, calling them "helpful" despite the White House's initial desire for a clean bill.
Scrambling to revive a package that met with bitter derision among constituents who viewed it as a giveaway to Wall Street, the Senate added sweeteners designed to please rural lawmakers, including disaster aid for hurricane-battered states and money for rural schools. The package was hitching a ride on a popular measure to require health plans for 51 or more employees to give equal treatment to mental health or addiction if they cover such illnesses.
House Democrats also asked senators to add a provision boosting the tax break for homeowners who do not itemize their tax returns. Another provision would extend the deductibility of state and local taxes for people in states without income taxes, which includes Florida and Texas.
House Democratic Leader Steny Hoyer of Maryland said, however, he was concerned that the tax additions could complicate the chances of final congressional passage when the legislation comes back to the House floor for a vote.
There are worries that fiscally conservative House Democrats known as "Blue Dogs" will be repulsed by the tax breaks because they believe cuts should be bankrolled with spending cuts or other tax increases.
The tax plan passed the Senate last week on a 93-2 vote. It included relief from the alternative minimum tax, $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana, and some $78 billion in renewable energy incentives and extensions of expiring tax breaks. All told, it would cost about $112 billion over five years.
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The defeat of the bail-out is a defeat for George Bush | The politics of failure The House's rejection of the bail-out plan represents a profound defeat for George Bush Oct 1st 2008 From Economist.com
GEORGE BUSH’S speech to the country on Tuesday September 30th had a quality of exhaustion about it. It proposed no new ideas or initiatives, promising merely to make another attempt to reach a deal with the House of Representatives, which the evening before had rejected the proposed $700 billion financial-rescue package. This was the seventh consecutive day on which he had pleaded in public for the bill’s passage. The effort is not over, he explained: “I assure our citizens and citizens around the world that this is not the end of the legislative process.”
Negotiations between the White House and Congress continue. Supporters of the bill hope the market turmoil that followed its rejection might chasten legislators who voted against it. Mr Bush sought to increase pressure on the recalcitrants when he pointed out that the one-day stockmarket loss—over $1 trillion—was greater than the estimated cost of the bail-out.
The Senate was due to vote on a rescue package on Wednesday. But even if the bill were to pass, that would not disguise the damage that defeat in the House has done to the dying administration. This was a humiliation, not only because of the size and significance of the plan but because the presidential faults and weaknesses that contributed to defeat have existed throughout Mr Bush’s two terms. Congress was testing Mr Bush’s mode of administration to destruction. This was defeat not only of a bill but of much of what his administration has stood for.
Since Franklin D. Roosevelt revealed the importance of talking directly to the public with his “fireside chats” during the Great Depression, the ability to influence public debate directly through appeals and persuasion has been one of the most powerful tools of any president. Mr Bush has used this power patchily, at best. His set-piece national addresses on the financial crisis have been short and passionless. They have shown little sense of a leader able to guide and shape national debate. According to polls by Pew Research Centre, 43% of Americans describe themselves as confused about the bail-out; half say they are scared. The power of guidance has long been beyond the president: his most recent job-approval rating (according to Gallup) was 27%, the lowest of his presidency.
Mr Bush lost credibility with the public a while ago. The vote in the House revealed how little the president has left among his own party and on Capitol Hill. Mr Bush has been reduced to a by-standing role in the financial crisis, leaving the design of the bail-out to Hank Paulson, the treasury secretary and Ben Bernanke, chairman of the Federal Reserve. Mr Bush left the task of lobbying Congress to his chief of staff, Josh Bolten, and to Mr Paulson—at least until he joined them at the last minute. Too little, too late, said Republicans.
Mr Bush faced an uphill struggle on Capitol Hill: representatives want to put as much distance as they can between themselves and him. That was a big reason why more than three-quarters of those facing close races voted against his proposals. But that was only 30 people; 228 voted against, including 133 Republicans.
Another factor was at play: this was a day of reckoning for the partisanship that has been a hallmark of the administration from the start. With Mr Bush in office, more congressional votes have run along party lines; campaigns and public debate have been more polarised. Although Democrats were persuaded to vote by roughly two to one in favour of the bail-out plan, bi-partisanship means more than just reaching out to the other side. It also means persuading your own party to compromise, which Mr Bush failed to do. Most of those who voted against the rescue came from the extreme ends of the parties, market fundamentalists on the Republican side; the black and Hispanic caucuses among Democrats (they are among the most left-wing members of Congress). This was an ideological defeat for an ideological president.
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Senate passes bailout Plan to buy $700B in troubled assets wins OK. Backers hope add-ons will yield more yes-votes in House.
The US Senate on Thursday passed the much anticipated economic bailout plan. This bailout plan, with a price tag of a whopping USD700 billion is a result of continued bi-partisan efforts.
While 74 voted for, 25 voted against the bailout plan by the Senate.
This plan will allow the US Government to take over troubled assets from banks which will help to keep them afloat and avoid frozen credits. But will increase the burden for future taxpayers.
This version of the bailout plan has also increased the Federal Deposit Insurance Corp cap from 1 lakh to 2.5 lakh to help small businesses. The changes are aimed at the public perception that this bill will only help Wall Street, banks and well-heeled executives.
The previous bailout package was rejected in the House and the uncertainty had cost the Dow Jones index 200 points in the trading on Wednesday. So, the US Senate planned to vote on a slightly revised version of the previously proposed rescue plan.
A group of representatives defended their vote on the bill on Wednesday, stating that there are other options that have not haven't been utilized. "What we're saying is use every tool in the box that's appropriate for this situation," said Democrat from Texas, Lloyd Doggett.
But others in the Senate view the Bill's prompt passage as a necessity, not an option.
"It really is an issue that goes right to the heart of Main Street. If you don't have credit in America, then the Main Street can't function," said Republican from New Hampshire Senator Judd Gregg.
Senator Harry Reid, Democrat and the Majority Leader said, "I'm hopeful and confident that all sides, House and Senate, White House, will work together to achieve a goal that will be good for the American people."
Both Presidential nominees Barack Obama and John McCain were in support of the Senate plan which includes raising the FDIC Insurance cap from US USD100,000 to USD250,000.
But some House members on Wednesday warned that problems may persist even with Senate approval of the plan.
"If, and it's rumored that the Senate intends to jam through the same bill with only with a change on the FDIC limit. If they do that without a real pay for, I think there's still going to be tremendous problems in the House," said Oregon democrat, Peter DeFazio.
President Bush has warned that the situation is urgent and the consequences will grow each day this bill is not passed.
The bailout plan passed by the US Senate will rescue the battered US banking system and will go back to the House of Representatives.
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Complete Story from senate
NEW YORK (CNNMoney.com) -- The Senate on Wednesday night passed a sweeping and controversial financial bailout similar in key ways to one rejected by the House just two days earlier.
The measure was passed by a vote of 74 to 25 after more than three hours of floor debate in the Senate. Presidential candidates Sens. Barack Obama, D-Illinois, and John McCain, R-Arizona, voted in favor.
Like the bill the House rejected, the core of the Senate bill is the Bush administration's plan to buy up to $700 billion of troubled assets from financial institutions.
Those assets, mostly mortgage-related, have caused a crisis of confidence in the credit markets. A major aim of the plan is to free up banks to start lending again once their balance sheets are cleared of toxic holdings.
But the Senate legislation also includes a number of new provisions aimed at Main Street.
The changes are intended to attract more votes in the House, in particular from House Republicans, two-thirds of whom voted against the bailout plan.
The House is expected to take up the Senate measure for a vote on Friday, according to aides to Democratic leaders.
The legislation, if passed by the House, would usher in one of the most far-reaching interventions in the economy since the Great Depression.
Advocates say the plan is crucial to government efforts to attack a credit crisis that threatens the economy and would free up banks to lend more. Opponents say it rewards bad decisions by Wall Street, puts taxpayers at risk and fails to address the real economic problems facing Americans.
"If we do not act responsibly today, we risk a crisis in which senior citizens across America will lose their retirement savings, small businesses won't make payroll ... and families won't be able to obtain mortgages for their homes or cars," said Senate Majority Leader Harry Reid, D-Nev., moments before the vote.
In a press briefing after the vote, Senate Minority Leader Mitch McConnell. R-Ky., said, "This is a measure for Main Street, not Wall Street. [It will help> to unfreeze our credit markets and get the American economy working again."
Because of Senate add-ons, the bill's initial price tag will be higher than the $700 billion that the Treasury would use to buy troubled assets. But over time, supporters say, taxpayers are likely to make back much if not all of the money the Treasury uses because it will be investing in assets with underlying value. How the Senate bill differs
The package adds provisions to the House version - including temporarily raising the FDIC insurance cap to $250,000 from $100,000. It says the FDIC may not charge member banks more to cover the increase in coverage. But that doesn't prevent the agency from raising premiums to cover existing concerns with the insurance fund, according to Jaret Seiberg, a financial services analyst at the Stanford Group, a policy research firm.
Instead, the bill allows the FDIC to borrow from the Treasury to cover any losses that might occur as a result of the higher insurance limit.
The bill also adds in three key elements designed to attract House Republican votes - particularly popular tax measures that have garnered bipartisan support.
It would extend a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels.
The Senate bill would also continue a host of other expiring tax breaks. Among them: the research and development credit for businesses and the credit that allows individuals to deduct state and local sales taxes on their federal returns.
In addition, the bill includes relief for another year from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called "income tax for the wealthy."
The debate over extending AMT relief is an annual political ritual. It enjoys bipartisan support but deficit hawks on both sides of the aisle contend the cost of providing that relief should be paid for. Others argue it shouldn't be paid for because the AMT was never intended to hit the people the relief provisions would protect. Nevertheless, lawmakers pass the measure every year or two. How Senate bill mimics House version
For all the sweeteners added to the Senate bill, however, it is similar to the House bill in many key ways.
The core is the Treasury's proposal to let financial institutions sell to the government their troubled assets, mostly mortgage-related. And as in the House bill, the Senate would only allow the Treasury access to the $700 billion in stages, with $250 billion being made available immediately.
The Senate bill is also similar in that it includes a number of provisions that supporters say would protect taxpayers. One would direct the president to propose a bill requiring the financial industry to reimburse taxpayers for any net losses from the program after five years. And the Treasury would be allowed to take ownership stakes in participating companies.
Like the House version, the Senate bill includes a stipulation that the Treasury set up an insurance program - to be funded with risk-based premiums paid by the industry - to guarantee companies' troubled assets, including mortgage-backed securities, purchased before March 14, 2008.
And it would place curbs on executive pay for companies selling assets or buying insurance from Uncle Sam. One provision: Any bonus or incentive paid to a senior executive officer for targets met would have to be repaid if it's later proven that earnings or profit statements were inaccurate.
Lastly, the Senate version would set up two oversight committees. A Financial Stability Board would include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director, the Housing and Urban Development secretary and the Treasury secretary.
A congressional oversight panel, to which the Financial Stability Board would report, would have five members appointed by House and Senate leadership from both parties. Differing views
Despite the Senate bill's sweeteners, the bill did not garner unanimous support because those who oppose the Treasury plan felt passionately it was the wrong approach.
Sen. Maria Cantwell, D-Wash., a champion of the energy tax breaks in the bill, said on Wednesday afternoon she nevertheless would vote against the bill because she opposes "giving the keys to the Treasury over to the private sector."
Opponents of the bill have said they resented being given a "my way or the highway" choice to address what they acknowledge is a very serious economic threat.
During the Senate debate on Wednesday, Sen. David Vitter, R-La., characterized the administration's request to lawmakers 12 days ago as "crying 'Fire!' in a crowded theater, then claiming the only [way out> is to tear down the walls when there are many exit doors."
Sen. Richard Shelby, R-Ala., said the Senate will have "failed the American people" by acting hastily. "I agree we need to do something. ... [But> we haven't spent any time figuring out whether we've picked the best choice."
Supporters of the bill say they hate the position they are in and are angry, too, but say it's better to do something now than to let the credit crunch persist.
"There's no doubt that there may be other plans out there that, had we had two or three or six months to develop ... might serve our purposes better," said Obama during the floor debate. "But we don't have that kind of time. And we can't afford to take a risk that the economy of the United States of America and, as a consequence, the worldwide economy could be plunged into a very, very deep hole." Potential costs
The tax provisions of the Senate bill - the bulk of which come from the addition of tax breaks from other legislation - may reduce federal tax revenue by $110 billion over 10 years, according to estimates from the Joint Committee on Taxation. More than half of that is due to the 1-year extension of AMT relief.
The Congressional Budget Office said it cannot estimate the net budget effects of the troubled asset program because of the many unknowns about that piece of the bill.
However, the agency noted in a letter to lawmakers on Wednesday, it expects the program "would entail some net budget cost" but that it would be "substantially smaller than $700 billion."
Overall, the CBO said, "the bill as a whole would increase the budget deficit over the next decade." All eyes on House
Now the fate of the bailout rests with the House.
"The reality has hit some members," said House Financial Services Chairman Barney Frank, D-Mass., late Wednesday on CNN. "The main change is reality - it's not possible now to scoff at the predictions of doom if we don't do anything."
The lead House Republican, Rep. John Boehner, R-Ohio, was consulted on the Senate's plans and gave his "green light," spokesman Kevin Smith said. "We believe we'll have a better chance to pass this bill than the one that failed [Monday>," he added.
The plan could attract House Republicans while simultaneously alienating bailout supporters among the Democrats because the tax cuts in the revenue bill aren't offset by spending cuts or increased revenues.
President Bush, following the Senate vote, said the bill was central to the "financial security" of the nation. "The American people expect - and our economy demands - that the House pass this good bill this week and send it to my desk."
So Far Away
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american economy is word F up n ya $700 billion these r for wall street's crocodile nt for ordinary person or nt for small businessmen as well. n american economy is in ression its mean world economy is in ression .mortgage companies nay looot khaya hai .now everybody wants to sell their house but there is no buyer . prices of everything goin up n up even atay k price bhi increase ho gayay hain lol .n when i wz in pak mai ya sunta thaa pak pay itna karzaaa hai per person one lac lol but america pay one trillion k karzaaa honay wala hai .everybody have eye on elections that after novemeber everything will be ok n e ways lets c . ya $700 billion congress mai pass nahi ho saka thaa a few days baq 224 votes against of it but uk n different countries nay minat ki k plz do pass the bill . n e ways american dream ki asii ki tasi ho gayii hai .but i hope everything will be ok otherwise am goin to move germany or australia lol
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nahi yaar its nt that easy prob janay k nahi hai prob is that ager mujy acchi job nahi milti wahan then i have to start frm zero n its difficult n except usa baqi sub countries social states hain n america is capitalist state yahan ap jitna kaam karo gay utna earn karo gay but in europe wahan sub ek jasiyay hain even u r a doctor or a labour lol so my frnd america is a best mai is ko bura nahi kah saktaa cz he gives me a lot haan ager mai yahan na raha tou mai paksitan a jaoon ga . barhaal america 1972 mai bhi asii situation mai the mean in ression so hopfully everything will b ok
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ager in k sath ya hua tou tum k sath is zaida bura ho ga i told u american economy is world economy yahan sirf flower or trees ki nurseries nahi hain its america nt holland n e ways
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Gee-Z said:
ager in k sath ya hua tou tum k sath is zaida bura ho ga i told u american economy is world economy yahan sirf flower or trees ki nurseries nahi hain its america nt holland n e ways
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lol kash jasiya mai RETHA hoon tum rah sakatay ather bahi lol i do nt live like bahi lol buss no more posting tum aub jo marzi kahoo fragi will kill me us k topic hai
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lol kash jasiya mai RETHA hoon tum rah sakatay ather bahi lol i do nt live like bahi lol buss no more posting tum aub jo marzi kahoo fragi will kill me us k topic hai
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lets c yaar kiya banta hai ek tou humaray president SAHIB bhi sara pillan k dewanay niklay lol did u c sara pillan the candidate for voice president she is so so beautiful lol
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Whew!: Wall Street bailout bill averts collapse - hopefully Tribune Editorial Article Last Updated: 10/03/2008 08:24:33 PM MDT
Congratulations to Congress, Reps. Jim Matheson and Rob Bishop and 169 other naysayers excluded. A majority of the House, following the Senate's lead, set politics and public opinion aside during an election year and united Friday in an attempt to save the nation from financial ruin by bailing out Wall Street. Keep your eye on the stock and credit markets and other economic indicators. And keep your fingers crossed as the Treasury Department, with essential congressional oversight, buys up the toxic mortgage-based securities and other bad debt that has poisoned our economy. There are no guarantees the plan will work, but time was of the essence, and doing nothing was not an option. Despised by dogmatic fiscal conservatives and a majority of the public who wanted Wall Street bigwigs to get their just deserts, the $700 billion bailout bill was approved 263-171 by the House, but only after a $110 billion tax-break package was attached. The addition of the tax breaks gave political cover to Congress members who realized that the rescue was a necessity, but previously opposed the measure in an attempt to save their political skins. It gave them an excuse for changing their votes. Some of the tax breaks rightfully raised eyebrows. For example, manufacturers of toy arrows and owners of motorsports facilities will receive tax credits and exemptions that were termed "sweeteners" and Advertisement
designed to win over key members of Congress. Limitations on the alternative minimum tax, credits to allow renewable energy resource development and other parts of the tax plan stand on their own merits. We hope, but are not convinced, that the financial industry learned a lesson about greed, and that Washington learned a lesson about oversight. The rush to deregulate our financial system in the past decade shows that if you give Wall Street enough rope, it will hang itself. And Main Street, unless drastic measures are taken, will swing with it. (Note to Congress: Have a nice vacation. Shake hands, kiss babies, get yourself re-elected. Then come back to Washington and finish the job. Roll up your sleeves, and rein in Wall Street and the lending industry by putting regulatory measures into place. For the sake of your constituents, make sure this never, ever happens again.)
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some body asked me ..dat wat is wall street .. so herez a lil intro of wall street
Wall Street is a street in lower Manhattan, New York City, USA. It runs east from Broadway downhill to South Street on the East River, through the historical center of the Financial District. Wall Street was the first permanent home of the New York Stock Exchange; over time Wall Street became the name of the surrounding geographic neighborhood.[1> Wall Street is also shorthand (or a metonym) for "influential financial interests" in the U.S.,[2> as well as for the financial industry in the New York City area.
Several major U.S. stock and other exchanges remain headquartered on Wall Street and in the Financial District, including the NYSE, NASDAQ, AMEX, NYMEX, and NYBOT.
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Effects of Wall Street Crash on Polls 2008 :-
Wall Street just jumped into the race for the White House in a big way. The ongoing crisis in credit markets—and taxpayer assistance for a growing list of troubled companies—is taking center stage for both Presidential campaigns. The issue is also offering voters a peek at each candidate's approach toward greater regulation of financial markets.
Both campaigns are fervently advocating tougher government oversight—a departure from the Bush Administration's more hands-off approach to financial matters. Senator Barack Obama (D-Ill.) argues that America needs a "21st-century regulatory system" and has seized on the liquidity crisis as an indictment of Republican policies. "What we've seen the last few days is nothing less than the final verdict on an economic philosophy that has completely failed," Obama said in a Sept. 16 speech in Golden, Colo.
Senator John McCain (R-Ariz.), a longtime critic of excessive government intervention, vowed on Sept. 16 to "put an end…to running Wall Street like a casino." At an Orlando rally Sept. 16, McCain called for a high-level commission to investigate the securities industry, and for ending "multimillion-dollar payouts to CEOs that have broken the public trust." Unease on Main Street
Analysts are trying to decipher how all the rhetoric could translate into action in a new Administration. "We're going to get some sort of financial regulatory bill in 2009," says Dan Clifton, a Washington-based analyst with Strategas Research Partners, a New York investment research firm. "The question is, what will it look like? Obama says he'll reject Bush's deregulation philosophy. McCain says he'll reform Washington and Wall Street. We're waiting for their specific plans." Clifton says analysts are trying to discern whether, if elected, McCain would adopt a "pragmatic" agenda that would "balance regulation with growth," or whether he would extend Bush's legacy. "That's the big wild card about John McCain." Obama, Clifton says, is more predictable: "He's clearly about regulation."
Given the turmoil, and the unease it inspires on Main Street, what matters on Nov. 4 will be which candidate presents voters with the more effective story on how to reform Wall Street excess. Conventional political wisdom says that the campaign's shift from a debate over Alaska Governor Sarah Palin's Vice-Presidential qualifications to financial trouble should favor Obama, who is quickly drawing connections between the crisis and Bush policies—and McCain. At the Colorado School of Mines, Obama pinned the blame for the crisis squarely on the Republican philosophy of deregulation. Still, Obama has had trouble making headway among many independent and low-income voters (BusinessWeek.com, 8/24/08) who backed Senator Hillary Clinton (D-N.Y.) in the Democratic primaries.
For its part, the McCain campaign is working to position the longtime Senate "maverick" as ready, willing, and able to clean up a broken financial system. McCain's financial commission would be modeled on the kind of panel that investigated the 2001 terrorist attacks. "We need to set up a 9/11 Commission in order to get to the bottom of this and get it fixed and act to clean up this corruption," McCain said in an interview with CBS. McCain's Populist Turn
Obama quickly ridiculed the idea. "Instead of offering up concrete plans to solve these issues, Senator McCain offered up the oldest Washington stunt in the book: You pass the buck to a commission to study the problem," Obama said. "That's how we got into this mess." Obama referenced a speech he made in March on financial-market overhaul at Cooper Union in New York. At that event, Obama recommended extending commercial-banking regulations to investment banks, hedge funds, and mortgage brokers. He also called for a commission to monitor threats to the financial system.
McCain's rhetoric has sharpened as the financial crisis has unfolded. In a Sept. 15 speech he maintained that the fundamentals of the economy are still strong; he later claimed he was referring to the strength and innovation of American workers. "We've seen self-interest, greed, irresponsibility, and corruption undermine these hard-working American people," McCain said Sept. 16 in Florida, a day after his campaign released a new television commercial focused on Wall Street turbulence: "Our economy is in crisis. Only proven reformers John McCain and Sarah Palin can fix it." The ad continues by saying a McCain-Palin Administration will propose "tougher rules on Wall Street to protect your life savings, no special-interest giveaways, and lower taxes to create jobs."
Both candidates will continue to position themselves as reformers of a financial system that's gone off the rails. What's not clear is how much more turmoil Wall Street has in store before the election—or how much change the public will demand.
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Effects on China ...
Few questions confound economists more: What might tip China into the meltdown that so many have feared for so many years?
Possibilities include overheating, social instability, corruption, pollution, debt crises, war over Taiwan and a post- Olympics growth swoon. It's a perfectly rational expectation. No rapidly industrializing nation has ever avoided some kind of crisis, least of all upstarts in Asia.
The list rarely, if ever, included a Wall Street crash. And yet, financial troubles in the U.S. may be the catalyst that devastates the world's fourth-biggest economy.
This will sound like a reach to those viewing Asia's strengths. China, for example, is enjoying 10 percent growth as U.S. lawmakers argue over rescuing markets and averting a depression. With its US$1.8 trillion of reserves, China could bail out the U.S. without batting an eye.
Japan is returning to acquisition mode after its banks avoided the toxic debt devastating U.S. peers. Mitsubishi UFJ Financial Group Inc.'s US$9 billion investment in Morgan Stanley this week is a case in point. After years of lecturing Japan about its shaky banks, the U.S. is coming hat-in-hand to Tokyo.
Yet China's chances of avoiding the U.S. crisis are dwindling by the day.
"U.S. consumers are tapped out and they're going to stop buying Chinese exports," says Simon Grose-Hodge, a strategist at LGT Group in Singapore. "There's no way China's domestic demand can take up that slack."
Recession risks
Adds Michael Pettis, a finance professor at Peking University in Beijing: "We should all hope the recession associated with the U.S. financial crisis is very, very mild."
The odds of a mild U.S. slowdown are declining almost as fast as stock prices. Even with hundreds of billions of dollars worth of Wall Street bailouts, consumption decreases and big job cuts will probably intensify.
The slow drip, drip, drip nature of Wall Street's swoon should concern officials in Beijing. China's mercantilist model makes the most populous nation dangerously dependent on consumers in the biggest economy. Growth in Asia will experience quite a setback if the U.S. enters a prolonged period of weakness.
Little help
While a Japan-like "lost decade" isn't the best-case scenario, Americans aren't sitting on the kind of savings that Asians are. As U.S. growth slows, debt is reduced and households increase savings, exporters such as Hong Kong, South Korea and Thailand must look elsewhere for demand.
Europe and Japan may be of little help. Japan is on the verge of a recession, while Europe is becoming increasingly vulnerable to events in the U.S. China will be hurt by all of the above, ridding Asia of a key source of stability.
Many say China's slowing from 10 percent growth to 8 percent isn't a disaster. Yet if a government relies on rising prosperity to conceal domestic challenges - including the widening gap between rich and poor - slowing growth is a major problem.
Nothing less than a drastic rebalancing will be required: More domestic consumption, a strengthening currency and greater investment in health care, pensions and education. Pulling that off quickly and with minimal disruption would be a feat like no other in economic history.
Anyone who believes China is set for smooth sailing as the U.S. sinks is likely to be as wrong as those arguing a year ago that the subprime-loan crisis was containable.
Asia decoupling
One of the key points here is the importance of Asia decoupling itself from the U.S. once and for all. It's easier said than done.
It's often pointed out that Asia is holding the cards. Were China to dump its US$519 billion of Treasuries, the U.S. would be in for a shock. So would China, as the fallout in the U.S. would drag on China's all-important export industries.
Stocks, too. Many Chinese are recession virgins - they are far more used to booming than slowing growth. Equity investors are far more accustomed to double-digit gains than big drops in shares. It's an open question how this year's 58 percent plunge in Chinese shares affects sentiment.
There is reason to think Asia can stand its ground. The region's improvements since the 1997 crisis left banks stable, markets humming and currency reserves at comfortable levels. Turmoil in the U.S. is encouraging Asia to take steps to become more independent from bigger economies.
Ignoring advice
Nations such as China are succeeding by ignoring advice from officials in Washington. After years of being lectured to bolster its banks, China is watching as the financial system the U.S. espoused as optimal crumbles.
The reluctance of Asian banks to buy hard-to-value securities such as collateralized debt obligations left them in "rock solid" financial shape, says Marc Faber, managing director of Marc Faber Ltd. in Hong Kong. Also, central banks have been taking steps to boost investor and consumer confidence.
If things get shakier, though, Asia could be dragged down with the U.S. economy. Amid unprecedented upheaval, it almost seems fitting that a risk few considered a year ago could be the one to undermine China.
