Why the US rescue package will happen

US BailoutSince President Bush announced plans to bailout the US economy with a $700 million rescue package there have been arguements and counter arguments about the pros and cons of such a move.  Debate has occurred all over the country from Congress right down to the person in the street, the ones who will ultimately have to pay for the bailout.  However, even after all of the doom and gloom merchants have stepped forward to paint a doomsday scenario, how was the rescue package not passed in Congress?

In order to get a bigger picture of the structure of US politics you need to appreciate that this is like no other democracy on the world.  There have

been many occasions in the recent past whereby party politics rather the actually policies in question have taken precedent when voting on a number of issues.  The US is a massive country and there are even many different lines of thought amongst members of the same party.

There are a number of issues which seem to have stopped the proposed $700 billion rescue deal in its tracks :-

Lack of detail

When the plan was first announced to the world, even before it was mentioned in Congress, it became apparent to anyone who read the ‘details’ that there were in fact no details.  The plan was very good on the surface but how it would be carried out, who would benefit and how tax payer’s money would be protected were just some issues which arose.  Let us face it, $700 billion is an awful lot of money to ‘gamble’ on a non-specific scheme which could, if not monitored carefully enough, be used by those in the financial sector to line their own pockets again.

Risk to tax payer’s money

While much has been made of the risks of the $700 billion bailout and the fact it could see a massive hit for US taxpayers, few realise that the authorities have already spent over $900 billion over the last 12 months supporting the financial markets and bailing out other troubled groups.  As we approach the finishing line for the presidential election, no candidate wants to be saddled with a scheme which is unworkable or doomed to failure, yet no candidate wants to come out and block the deal out right – American voters have very long memories!

Rewarding the ‘greedy’ bankers

Perhaps the largest movement against the $700 billion bailout is coming from those who believe that yet again we are seeing the tax payer bailout the ‘greedy’ bankers who have made literally billions of dollar over the last ten years.  However, while this may be true to some extent it is wrong to tar all bankers with the same brush as, like any other industry, there are rogue traders and those who ‘play it by the book’.  Many people believe that yet again it is the financial sector which takes the greatest risks and again the financial sector which is bailed out by the tax payer.

Pressure from the Bush administration

Many Republicans and Democrats in Congress were dismayed to see George Bush announcing the deal to save the economy, taking the applause from all around the world before he had even put the issue to Congress.  There is a feeling within political circles that Congress is ‘teaching’ George Bush a lesson on how to introduce new bills to the world and the fact that Congress is a vital element of any plan to ‘save the world’.  The fact that a great number of people actually blame the Bush administration for feeding the US financial monster over the last few years is also a factor, with many loathe to affectively ‘bailout’ Bush out at the expense of the tax payer.

What next?

After the bill was defeated at the weekend there was a growing feeling that it was only a matter of time before a watered down version of the plan was passed through Congress.  While the two day Congress holiday at the start of this week was initially seen as a problem it has actually worked in favour of the Bush administration and allowed a period of calm reflection on what is at stake – in affect the future of the US economy and possibly the future of the US as a superpower over the next decade.

It looks as though there will be another vote today which is expected to see a rescue plan voted through Congress and then quickly rushed onto the statue books.  We could in theory have a rescue package up and running within a week, injecting much need confidence back into the markets.


While it is sometimes very difficult to understand exactly what happens in US politics it seems that we have been playing one of the highest stakes games you could ever imagine.  A mixture of anger from the public and an unwillingness to put tax payers money at risk have been hedged against the need to do something now to save the US economy.  It looks as though a package will eventually go through Congress and ‘save the day’.

When you consider that approaching 3 million US households have seen their properties repossessed over the past 18 months, with many being tossed onto the streets in make shift ‘tent villages’ the situation could not get much worse.  Party political infighting has to be put to one side and the issue addressed in a cool, calm and balanced manner.  If there is a way to protect tax payers money then great, but it still appears to be a risk worth taking with tax payers likely to benefit more than any other group in the US.

However, if the US deal does go through this may cause something of a dilemma for countries such as the UK, Germany, France, etc where there will be pressure to announce their own rescue packages.  The US deal alone will instil some confidence back into markets but local problems around the world could easily gnaw away at any new found confidence and slow down the recovery – or even put it at risk.

If you were in the US, would you be prepared to take all of the risk to bailout your own economy and the rest of the world benefit without the risks?

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