Today, the House of Representatives denied the bailout deal negotiated by Treasury Secretary Henry Paulson, President George W. Bush and Congressional Democrats and Republicans. That deal was H.R. 3997, also known as the Emergency Economic Stabilization Act of 2008.
So what's next?
To oversimplify, the options are: bringing the deal up for another vote, moving ahead with no bailout, or revising the bailout and bringing a new version up for a vote.
Let's say there's no deal...
WHAT THE CRISIS MEANS TO YOU
First off, is your job at risk? Economist Alan B. Krueger put in his two cents at Economix on how the credit crisis affects jobs:
Historically, most downturns have hit the least-skilled the hardest, as employers hold on to workers with unique skills who would be expensive to replace. This downturn, however, is likely to be more democratic than the norm because of the severity of the credit crunch. Research indicates that employers hire relatively more skilled workers when they invest in new plant and equipment, especially high-tech information and computing equipment (the so-called "capital-skill complementarity" hypothesis). If funds for investment are not available because of the financial crisis, however, companies will hire fewer skilled workers.
What does this mean for you? Even in the best of times the United States labor market is highly volatile, with millions of jobs being created and destroyed each month. But just because your job may have been safe in past downturns does not mean it will be secure this time. Key questions you should ask are: Does your company need investment funds to upgrade plant and equipment to compete with other companies? Do your customers rely mainly on credit to buy your product or service? Do you do business with companies that are hard hit by the financial crisis? If your answers to these questions are yes, your job is more likely to be at risk.
AOL Money & Finance has quick, easy-to-understand bullet points on how the current crisis will affect average folks' stocks, savings, homes, retirement funds and insurance.
Frequent Huffington Post and CNBC contributor Vince Farrell hopes to calm people in the absence of a bailout:
"Let's not spend time pointing fingers as to who is responsible for the rescue package's failure today. Let's recognize that the stock market is not the main show, although it is the most visible show. I think most of us know that the credit markets are frozen and as the yield on the three month T-bill is almost 0%. It's saying we'll take your money and give it back, with no interest, but you'll get it back. Fear rules.
"Maybe we should take the first $350 billion that was going to be allocated to the rescue plan and split it. Half to struggling homeowners for direct relief and half to the rescue fund for banks to reliquify their balance sheet. Let the FDIC insure money market funds and ,more importantly, bank deposits to $1 million. Let people feel their money is safe."
But some commentators on TV, as well as many legislators and Treasury Secretary Henry Paulson say that a bailout deal is needed. Assuming that Paulson's original plan and Congress' revised plan can't get get passed, here are a couple of plans being put together by brilliant economists and simple armchair quarterbacks alike:
ALTERNATIVE BAILOUT PLANS
Henry Blodget wrote at Clusterstock that some economists, moderated by Martin Wolf at the Financial Times, have been proposing alternative bailout plans. Here are three, with Wolf's comments on them:
1. Force banks to write down assets to market value, stop paying dividends, and raise new equity. We've basically tried this, and except for the top firms, it hasn't worked: Because no investors are dumb enough to invest.
2. Force banks to write down assets and then recapitalize them by converting debt to equity. This hits both bondholders and shareholders, and it costs the taxpayer nothing. It will also likely be so unpopular with Wall Street--and, more importantly, investors--that it would be politically untenable.
3. Force banks to write down assets and have the government take equity stakes via preferred stock. This is the way Buffett invested in Goldman (he was comfortable with the carrying value of its assets). It's the way the Sweden did it. It's also the way any responsible private market investor would invest.
A few more at TheBigMoney:
Maybe a fresh start--one free of Paulson and Bush's three-page skeleton--is what's needed. Plenty of economists, pundits, and Joe Publics have weighed in with their thoughts for weeks. Some highlights include liquifying some markets and recapitalizing others to allow healthy markets to get reinforcements and others to wither away, boosting the FDIC so it handles the failures while watching natural selection do its thing, or letting Warren Buffett negotiate our bailout for us. Mother Jones has collected a host of others.
Seeking Alpha has this alternative bailout plan to offer:
Here is an alternative plan; take the $700 billion and recapitalize the banks and insurance companies buried in the toxic waste. Specifically exclude the hedge funds; their investors all certified they were big boys who could take their lumps when they got in. Take an equity stake in return and dilute the existing stockholder's equity. Forget congress capping executive compensation, let their shareholders do it as payback for the dilution of equity. Force a mark to market and get all this garbage off everyone's balance sheet.
Then take the equity stakes taken in compensation and put it in the social security trust fund (if there really still is one) to reduce the load on the grandchildren we are asking to pay back this debt.
And from the Christian Science Monitor, a "better bailout" proposed last week:
A more effective strategy would be for the government to target the source of the toxicity by buying actual loans, not the securities that back them. It could do so by taking ownership of entire mortgage pools, starting first with the lowest quality (and most toxic) ones.
With congressional authorization, the Treasury could force the purchase of these assets through eminent domain and make an immediate payment of an estimate of the loans' current fair value, which would then be later reviewed for adequacy by a judicial forum.
And on Twitter:
"I have a better bailout plan. Give each tax payer $125,000 and let US fix the economy. We can pay our mortgages and stimulate the economy."
"$700B Bailout? Better idea (and must be cheaper) to stimulate the Economy: Give every family $1M cash, tax free."
"She proposes a "Scores Bailout" - dances @ 30 cents on the dollar. Aaand scene. Excellent moment for Faris, better for Wiig. She rules."
OPINIONS ARE LIKE... BLOGS... EVERYBODY'S GOT ONE
A couple of other headlines: