Local congresswoman Lois Capps has had a tumultuous two weeks.
The 110th session of Congress was just winding down, and Capps was eager to return to Santa Barbara to focus on her bid for re-election. Then the economy began to crumble at its base.
“It was sort of like a flood after that, full of dramatic requests and anger, anger from the public,” Capps said.
It was on Sunday, Sept. 14 that Lehman Brothers – one of the nation’s largest investment banks – shocked the country by declaring bankruptcy. Less than 24 hours later, the global insurance giant American International Group, or AIG, announced that it wouldn’t be able to weather the storm, prompting the US Federal Reserve to recommend an $85 billion bailout. Capps was stunned.
“It was very sobering,” Capps said. “The immediate question was ‘How did this happen?’ It was either the people in charge didn’t know or they didn’t tell anyone what they did know. Either way, it’s all very frightening.”
The nation — and the entire global market — held its breath, waiting to see what the U.S. Government would do. It was on Friday night, five days after the collapse of Lehman Brothers, that the answer came. Seven hundred billion taxpayer dollars was the amount the Bush Administration said was needed to restore stability to the financial markets.
It took a week and a half of debate for Senate leaders and the president to agree on a working bill, and on Monday the $700 billion bailout went before the U.S. House of Representatives. It failed to pass, 205 to 228, with Capps voting for the losing side. The Dow reacted by plummeting 778 points — its worst day ever.
“I was in dismay,” Capps, said. “Although it was a really tough vote for me, when it failed, my feeling was nausea.”
Capps acknowledged that the prospect of devoting billions of taxpayers’ dollars to Wall Street can be difficult to swallow, but she said the alternative is far worse.
“Your first thought is that the taxpayers were going to have to foot this enormous bill, but then, when I thought about the alternative, I knew I had to vote for it,” she said.
Despite this, public opinion of the bailout has been exceedingly negative. Polling shows that many Americans feel the whole debacle was caused by greed on Wall Street, and most are reluctant to see their tax money bail out the lumbering financial giants. Capps, however, said the belief that tax money is simply being dumped into Wall Street is a misnomer.
“The public is still very angry about it,” she said. “But this is not a bailout, this is a reinvestment. This bill exists so that companies can be stabilized. This bill is going to reimburse the taxpayers — we’re going to buy these bad mortgages at garage sale prices and hold onto them until things stabilize.”
Under the bailout plan, the U.S. Government would buy toxic mortgages — which have currently frozen the free flow of credit from banks to businesses as well as in between banks — in the hopes of thawing the credit market and returning fluidity to the financial systems. In theory, if and when the economy recovers, the government would then be able to sell back the mortgages for the same price they purchased them for, if not more.
However, after the House failed to pass the legislation, Senate leaders had to go back and adjust the bill, adding provisions they hoped would entice House republicans. In a rare late-night vote, the Senate voted last night on a revived rescue plan, passing it with an easy majority, 74 to 25.
Capps remained optimistic that a strong showing from Congress in the upcoming days could help bring confidence back to Wall Street.
“I feel a strong vote in House and Senate will give the market confidence, and we can start to correct this mess,” Capps said. “But you have to realize that our economy wasn’t strong before this all happened.”
With the revised bill’s successful passage through the Senate, it returns to the House, where a vote may occur as soon as tomorrow.
And while predicting how someone will vote is never a sure bet, judging from Capps’ take on the last vote, one can expect a similar response from her the next time the plan reaches the House floor.
“Voting for [the rescue plan] was something I needed to do so I could live with myself,” she said.