September 29, 2008 / 6:40 PM / 11 years ago

INSTANT VIEW: House of Representatives rejects bailout

NEW YORK (Reuters) - The House of Representatives on Monday rejected the Bush administration’s proposed $700 billion rescue package for the financial sector, triggering a massive sell off in stocks and a rush into safe-haven government bonds.

KEY POINTS: * With a majority of Republicans voting against, the House voted 228 to 205 to reject the measure. * The Dow Jones industrial average was down by more than 700 points at one point. * Democratic leaders in the House said they would need to reassess the economic reaction before making any decisions. * U.S. 30 year Treasury bonds rose a full 4 points in price.

RUDY NARVAS, SENIOR ANALYST, 4CAST LTD, NEW YORK:

“It is looking like it is not going to pass. It is unfortunate that they didn’t pass the bill, given that the markets are really betting on this. Even though we are seeing stocks paring some of their losses there is still disappointment and complete uncertainty over what is going to happen. At the same time I am not sure what it would have done in the short term as far as helping short-term funding in the markets. It may shift focus among the Fed and the Treasury on trying to shore the commercial paper market up and other forms of short-term funding.

There is a risk of failure of the financial system, although I don’t think that is going to happen. At least the bailout package gave some certainty, at least something was out there, but now the market is left to its own devices and whatever liquidity facilities the Fed has out there. But at the same time too the Fed’s balance sheet is really tied up and the fact that they increased the swap line with other foreign banks only ties it up even further. We are in a situation where the market is looking around and saying what else can the government throw at us, and it is not much else right now.”

AXEL MERK, PORTFOLIO MANAGER, MERK HARD CURRENCY FUND, PALO

ALTO, CALIFORNIA:

“The credit market is completely seizing up. The question is: Are the central banks powerful enough to stem this crisis? We saw the bailout bill rejected by the House, and that’s bad for the markets. Not doing anything now would be more dangerous. We are just running from patch to patch. So what is the government going to do next?

“Gold is soaring on this. The euro, on the other hand, is a little bit reluctant to rally on this because there are problematic banks in Europe. The yen, meanwhile, is rising because of deleveraging. And the dollar, at the end of the day, will be worse off than the euro, I think. But the one good thing about the U.S. is that there are no more big banks that can collapse because most of them are gone. The ones remaining are just too big too fail. So fasten your seat belt, folks. It’s going to get uglier.”

MIKE FITZPATRICK, VICE PRESIDENT, MF GLOBAL IN NEW YORK:

“Clearly its a surprise to the markets by the reaction.”

BOSTON:

“I can’t believe they weren’t able to come together and come up with a solution. Complete disaster was predicted if it didn’t pass.. and it didn’t pass. Everybody was expecting it to pass and it didn’t pass. I can’t see what the upside is right now.”

RUDY NARVAS, SENIOR ANALYST, 4CAST LTD, NEW YORK:

“It is looking like it is not going to pass. It is unfortunate that they didn’t pass the bill, given that the markets are really betting on this. Even though we are seeing stocks paring some of their losses there is still disappointment and complete uncertainty over what is going to happen. At the same time I am not sure what it would have done in the short term as far as helping short-term funding in the markets. It may shift focus among the Fed and the Treasury on trying to shore the commercial paper market up and other forms of short-term funding.

There is a risk of failure of the financial system, although I don’t think that is going to happen. At least the bailout package gave some certainty, at least something was out there, but now the market is left to its own devices and whatever liquidity facilities the Fed has out there. But at the same time too the Fed’s balance sheet is really tied up and the fact that they increased the swap line with other foreign banks only ties it up even further. We are in a situation where the market is looking around and saying what else can the government throw at us, and it is not much else right now.”

FEDERAL CREDIT UNION, NEW YORK:

“Sentiment has been quite poor with respect to the bill all along, for many House members and their constituents. Hopefully they are not gaming it for political purposes and understand it’s of vital importance for the financial system in the U.S. and beyond. They would do the economy and people in the U.S. a tremendous disservice. This is not to say the bill would be a definitive solution to everything we’ve seen but it could prevent further contagion and help stabilize the financial system and see an expansion of credit. Everything is in freefall, except Treasury bond prices which are rallying vigorously.”

LOU BRIEN, MARKET STRATEGIST, DRW TRADING GROUP, CHICAGO:

“The initial reaction was obviously because of the House voting against the bill. You are seeing financial companies and stocks getting hit across the board on anticipation if this vote holds and Treasuries are reacting.”

MARKETS IN NEW YORK:

“Last week we wrote that “failure was not an option”, as failure to pass it would precipitate a renewed meltdown in financial markets. Congress apparently doesn’t understand the stakes.”

“The only ray of light is that the horse trading is not over and some of the no-voters could switch.”

WASHINGTON:

“Clearly not a good sign for the credit market and for the U.S. economy on the whole. Stocks are accelerating their losses and the dollar is also suffering. This was a very unpopular bill and the government is having a tough time selling it to the public. Politics is trumping business here.”

BARRY RITHOLZ, DIRECTOR OF EQUITY RESEARCH, FUSION IQ, NEW

YORK:

“It looks like it didn’t pass the House. That’s why you see the plummet. It looks like a bad plan is better than no plan.”

MARKET REACTION: STOCKS: Equities markets around the Americas are plummeting in reaction to the vote. BONDS: Government bonds surge, with the U.S. 30-year bond up 4 full points. The 10-year note is up more than 2 points. CURRENCIES: Dollar off highs against euro and near day’s low against yen COMMODITIES: Gold rises 3 percent while oil plunges $10 a barrel.

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