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October 4th, 2008

House Passes Bill, Treasury Gets to Work

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In a 263-171 vote, the House approved the Treasury Deparment’s historic $700 billion-rescue plan yesterday, with President Bush signing his approval shortly thereafter. The Treasury Department is expected to get to work quickly, using a large portion of the proposed $700 billion to purchase bad assets from financial institutions. After voting down the legislation earlier in the week, the House approved a new version constructed by Congress that included new tax cuts, an increase to FDIC-deposit insurance, and changes to the fair-value accounting rules.

Stocks finished down 157 points on Friday after increasing nearly 300 points when the House began casting their votes. Experts are predicting the cleansing of bad assets will not be felt for at least a few weeks. No immediate affect was felt in credit markets, as the three-month LIBOR rate, the rate banks charge each other to lend, rose to 4.33% Friday, up from 4.21% on Thursday. Bank will once again need to increase their lending to one another if healthy credit markets wish to be re-established:

The legislation ranks alongside other broad federal attempts to prop up the economy, such as Roosevelt’s New Deal and the resolution of the Savings and Loan debacle of the late 1980s and early 1990s.

It will likely be followed by other moves. The Federal Reserve could cut interest rates and take further steps to ensure there are enough funds coursing through the financial system. Congress has already beefed up jobless benefits and is expected next year to push for new stimulus efforts, such as spending on infrastructure.

Looking to next year, Democratic lawmakers are planning to revamp financial-system regulations, with hedge funds, private-equity funds and investment banks all likely to come in for tighter scrutiny. House Speaker Nancy Pelosi (D, Calif.) portrayed the legislation as “only the beginning” of the legislative response to the faltering economy.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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