New $700 Billion Bailout - Options
by John Seo
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After the initial bailout plan was rejected Thursday by the United States House of Representatives, Secretary Paulson, Chairman Bernanke, President Bush, Senator McCain, Senator Obama and Senate lawmakers have initiated a new rescue plan with new options to be voted on the morning of October 1, 2008. The vote comes at the end of the Jewish holiday to celebrate the Jewish new year, Rosh Hashanah (ראש השנה‎). The plan includes extensions of the capital gains tax reduction and Alternative Minimum Tax reduction (AMT) and an increase in FDIC coverage from $100,000 to $250,000. Senate Democratic leader, Harry Reid, stated: "Today's really a good day to be a millionaire, but it's a bad day if you want to be(come) a millionaire." Bush's diminishing clout was challenged Tuesday as House representatives voted 228 - 205 against the old Bush bailout plan, but it seems that some form of new legislation will pass, as Secratary Paulson Jr. and Speaker of the House, Nancy Pelosi announced they had agreed on new terms of the bailout language.

Besides bailout initiatives, the government has been swift in marketing failing banks such as the JPMorgan buyout of Washington Mutual and Citibank buyout of Wachovia to prospective buyers giving a sigh of relief to lawmakers being pressed to pass the largest piece of legislation in American history.

Many economists, who have been examining failing banks, oppose the plan on the basis of fairness, ambiguity and long-term effects. They believe that the plan is a subsidy to investors at taxpayers' expense. Investors who took risks must "bear the losses associated with those risks." They question the ambiguity of the plan, stating that the "oversight option are not clear." Further, they question what the long term effects will be on the government budget and private capital markets.

The last time the banks were in this kind of mess was when the 1929 Great Depression that lasted into the 1930s and 1940s. It had worldwide economic impact where individual income, tax revenue, pricing, profits, employment, and property values were all severely affected. American's are relieved that chairman Bernanke has done extensive study on the Great Depression. It is during these world crisis of the past that rogue leaders like Hitler gained acceptance. This is of great concern to American policymakers as Mahmoud Ahmadinejad, Hugo Chavez, and Vladimir Putin have all been increasingly active in the political sphere.

It will be interesting to see whether Democrats support the addition of tax incentives to the wealthy to try and prop up the stock market after the Dow Jones Industrial Average (DJIA) fell almost 7% (778 points) on Monday relinquishing $1.2 trillion from shareholders accounts. This is the largest single day sell off since the 1987 crash .

Bush said of the proposed tax cuts, "The opponents of these tax cuts were wrong when they voted against them the first time, they've been wrong to oppose the extension of tax relief in the face of overwhelming evidence that the tax cuts have helped grow the economy and create millions of new jobs. If you have a mutual fund for your family, these tax cuts made you better off, if you have an IRA or 401(k), these tax cuts will help provide a better retirement."

American Banks are not the only companies under fire. Fortis, received a rescue package totaling $16.2 billion from the governments Belgium, Netherlands and Luxembourg. The German government along with other commercial Tier 1 banks offered $43 billion to Hypo Real Estate, a commercial property lender. And the British Treasury seized and sold Bradford & Bingley to Banco Santander of Spain.

The shuffling and restructuring of world capital will undoubtedly bring a new era of hegemonic differentials between first world countries, and possibly allow for the swift climb of several fledgling countries.