The House of Representatives yesterday rejected a $700 billion bailout of the financial industry, even as congressional leaders pleaded for its passage and argued that it was necessary to stave off a devastating economic collapse.
The Dow Jones Industrial Average experienced an unprecedented fall yesterday, dropping by 777.68 points, the most ever in one day. Oil prices also plummeted.
"Wall Street was counting on [the bill] passing," economics Lecturer Anna Hardman said, explaining the stock market drop.
In the House, 228 representatives voted against the Emergency Economic Stabilization Act of 2008, and 205 supported it.
Advocates of the failed bill are scrambling to craft substitute legislation that can appease representatives, whose phones rang off the hook in recent days with calls from angry constituents.
"Those who have caused the problem [are] receiving the benefit," Economics Lecturer Jack Green said, referring to how the legislation would benefit Wall Street executives. This proposed payout to major companies has frustrated many Americans, he said.
The bill would inject taxpayer money into private financial companies, many of which are shutting down or being bought out as the result of the mounting global recession.
Backers of the bailout legislation backers include Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry M. Paulson, Jr., House Speaker Nancy Pelosi, President George W. Bush and the two major presidential candidates, Sens. John McCain (R-Ariz.) and Barack Obama (D-Ill.).
Paulson promised to continue working to pass the bailout. "This is much too important to simply let fail," he told the press after the House's vote. Paulson insisted that rejecting the bill meant doom not only for companies, but also for everyday Americans. "Families, too, feel the credit crunch as it becomes more difficult to get car loans or student loans," he said.
Opponents of the bill argued that it had been put together too hastily and that it committed too much of taxpayers' money and not enough funding from Wall Street firms, whose irresponsibility many blame for the current economic turmoil.
Supporters believed the bailout was vital to helping both smaller businesses and major financial corporations weather the crisis.
"A lot of people who don't like this still believe that it may be the least bad option," Hardman said.
"Nobody wanted to be in this situation," Rep. Ed Markey (D-Mass.) said in a statement. "But, after careful consideration, I decided to support this bill because I believe that a failure to act now would not just punish Wall Street, but put hard-working Americans at risk of losing their homes, their jobs and their savings." Markey represents parts of Medford, including a portion of Tufts' campus.
Barton Edgerton, a lecturer in the Department of Political Science, agreed that inaction will only exacerbate the problem. "I think the worst thing is doing nothing; I think that there's pretty broad agreement that something needs to be done. [But there's] a good deal of dispute as to what should be done," he said.
According to The Wall Street Journal, the bill would provide the Treasury with access to a $700 billion line of credit and wide authority to buy shaky mortgages, securities and financial assets that are undermining market confidence and limiting the liquidity of financial institutions.
While current economic turmoil and lack of liquidity will resound more immediately across Wall Street, they will impact students as well.
"Already, in the past year, student loans have come under tension," Edgerton said.
Last week, the Daily reported that 135 lenders have suspended federal loans through the Federal Family Education Loan Program (FFELP), including the Massachusetts Educational Finance Authority, the state's most prolific student lender.
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Alexandra Bogus and Giovanni Russonello contributed reporting to this article.
