Market plummet called an 'urgent' signal for help

The nation has weathered panics like the one triggered by Monday's failure of the House to bail out the country's troubled financial system before, an Indiana-based economist said.

But that doesn't mean it isn't necessary, said Morton J. Marcus, a columnist and independent economist formerly with Indiana University's Kelley School of Business.

Why did the financial bailout fail?

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In a statement released before Monday's vote, 8th District Rep. Brad Ellsworth said he supported the bill because it included critical protections for taxpayers.

"This economic crisis touches all of our lives, but that doesn't mean it should be solved on the backs of hard-working Americans. By including these new taxpayer protections, we're sending a message to Wall Street: 'This is a loan, not a giveaway. And we expect to be repaid in full.'"

Ninth District Rep. Baron Hill, who voted against the proposal, told the Associated Press he has "been rushed to judgment by the Bush Administration before. There hasn't been enough time to evaluate the impacts this legislation would have if enacted, or to consider alternatives. Congress deserves time to weigh the benefits and the potential pitfalls of borrowing this money."

— Mark Wilson

Courier & Press staff writer

How to Contact lawmakers


n Brad Ellsworth: Go to and use the "Contact" function, or call 465-6484 (Evansville office) or (866) 567-0227 (Washington, D.C., office)

n Baron Hill: Go to and use the "Email Congressman Baron Hill" function, or call (202) 225-5315 (Washington, D.C., office)


n John Shimkus: Go to and use the "Send a Message" function, or call (202) 225-5271 (Washington, D.C., office)


n Ed Whitfield: Go to and use the "Contact Me" function, or call (270) 826-4180 (Henderson office) or (202) 225-3115 (Washington, D.C., office)

"I think it is very necessary and very urgent matter, and that is what the stock market was telling us," he said. "It is clearly a situation that the stock market looks at and says this is bad. This could lead us toward a serious recession and financial chaos."

The Dow Jones industrial average plummeted nearly 800 points as the House voted 228-205 to reject the $700 billion emergency rescue bill. It was the greatest single-day drop since the day after the Sept. 11 terror attacks, although in percentage terms it was not as much as the drops on Black Monday in October 1987 and at the start of the Great Depression.

"The fact is that the history of the United States is written in terms of panics," Marcus said. "We had them throughout the 19th century, and we were very fortunate that we didn't have as many in the last century. Panics have always led to more regulation and more expectation that the government will step in and provide a new framework" to keep people safe.

"The vast majority of banks in Indiana are in good financial shape," he said. "They are not having problems. But at the same time, they are going to be very cautious. They want to be very careful about lending money even to good clients when there is a possibility that others won't be able to pay back their loans."

That caution is beginning to cause problems for some consumers as credit becomes more difficult to get, he said. Ultimately, such a situation will ripple through our entire system.

Customers using credit cards to make purchases won't buy as many goods. Then stores won't stock as much, affecting our system of warehousing, transportation and production. That in turn will affect employment, which will continue to trigger fewer purchases.

"All these effects are moving through the economy," Marcus said. "For Indiana, it is a very serious matter. Any slowdown in consumer buying will hit our companies one way or another."

The Dow's plunge on Monday was shadowed by drops in markets around the globe, said Walayet Khan, a professor of finance at the University of Evansville. He said he watched international markets throughout the day on the Internet. Only a few stayed strong.

"I have not witnessed such a day before," Khan said. "They were sending a very clear, unambiguous signal that they are very concerned about this failure. It is very clear people were thinking that this was an important rescue plan. It could have given some strength to our financial system and put the economy back on its feet."

Khan said he tracked the ups and downs of foreign markets in recent days and observed that they appeared tied to positive and negative news about the bailout plan.

"We are living in a global economy. If this package is not passed in one form or another, we will see global economies slowing down," he said. "The U.S. produces nearly one-third of the global gross domestic product. We are the key players in the world. ... American consumers are a big driving force in the global economy."

If the country is in recession, it will not import as many foreign goods, Khan said.

Both Marcus and Khan agreed some sort of bailout will take place.

"... They will come up with some solution. They have to," Khan said.

Marcus said any new version of the bailout likely will include stronger protections for taxpayers and direct relief for homeowners by including authorization for them to renegotiate their mortgages.


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Comments » 25

Warden writes:

Heard Newt Gingrich's proposal tonight, sounds good and doesn't take 700 billion dollars from the taxpayers. Worth looking into.
We have to FIX what was wrong, not just throw money at the problem. Hasn't worked with our schools.

blue2golf writes:

Overseas markets are a little unsettled, but not doing too bad right now. I'd say go back to the drawing board and come up with something better...oh yeah, tell Nancy to shut her yap this time...

GIPPER writes:

You are both right!

Warden writes:

A possible conflict of interest with Fed Reserve Chair Bernacki, US Treasure Secretary Paulson, and Chairman of Goldman Sachs, Lloyd Blankfein in meetings to (?? draw up the bailout ??) meetings over the weekend and on Monday?
New York Times =

madlex#220611 writes:

IF Dodd, Waters, and Schummer would have allowed the controls to stay on loans, we would not be in this problem. THey were involved with lifting the restrictions on bad loans to make Freddie and Fannie look good, thus helping them cook the books and here you are.

A couple of things to think about is this. If the bailout would have passed, Paulson would have been able to bailout ANY bank or lending institution in the WORLD without any restrictions, including countries like China, Russia, etc. Also, nobamas favorite organization of which he was the lawyer and instructor for, ACORN would have benefited from it. Plus, there would have been NO oversite committee to watch what the money was spent for and had no restrictions.

As usual, Ellesworthless voted with the looser pelosi and it went down in flames. Once again, the voice of the taxpayers was listened to. We don't need any more of pretty boy.

Everyone has a solution. Maybe we need to let nature take it's course and see what happens. We are down the tubes anyway. So, the only way back is up.


wabanzi writes:

This was a compromise bill proposed by the republican white house, supported by the republican presidential nominee and the republican leaders of congress, and yet 2/3 of republicans couldn't step up to the plate. So much for republican's ability to lead and work across the isle.

Dems--maybe you should just write the bill you want. Include all those bankruptcy protections, tighter CEO comp restrictions, etc. that you originally wanted and just leave the republicans out of it. You have the votes with out them. Why comprise with a party who has know idea of who they are or what they want?

typeallnegative writes:

Show me where we 'threw' money at inner city schools.

joehilarious#12053 writes:

I am so tired of these congressman feeding at the trough. I see our Congressman (Ellsworth) was there voting yes. I do not think that there is any way this should be passed. Someone has to make wall street accountable for decisions made. After all we have to be. They made risky investments and now want to be bailed out. I say they need to pay the piper. Everyone should call and email your congressman to vote no to this piece of crap legislation. This issue is 80% against by the American public. We vote for representation and what we get are hogs feeding at the trough.

itsabouttime writes:

madlex, if you are going to point fingers, do your homework. The problem started in the Reagan administration (remember the crash of 1987?) and was compounded by the 1999 deregulation bill sponsored by McCain's advisor, Phil Gramm. History is repeating itself. News article "John McCain: Crisis Enabler" (The Nation, Sept. 21, 2008) reported the following: "In 1982, the same year John McCain entered the Senate, a bill was put forward that would substantially deregulate the savings and loan industry. The Garn-St. Germain Depository Institutions Act was an initiative of the Reagan administration, and was largely authored by lobbyists for the S&L industry--including John McCain's warm-up speaker at the Republican National Convention, Fred Thompson...Seven years later, the S&L industry was collapsing. What was the cause? Garn-St. Germain had handed the S&Ls a greatly expanded range of capabilities, allowing them to go head to head with full service banks, but it hadn't handed them the bank's regulations. Left to operate in an anarchistic gray area, S&Ls had chased profits, indulged in amazing extravagances and cranked out enough cheap mortgages to fuel a real estate boom. They had also experimented with lots of complex, creative--and risky--investments, even though they didn't have the economic models to really determine the worth of the things they were buying. The result was a mountain of bad debts and worthless "assets." Does any of that sound eerily (or nauseatingly) familiar?"

Fast-forward to 1999's Gramm-Leach-Bliley Act. "This act passed out of the Senate on a party-line vote with 100 percent Republican support, including that of John McCain."

Further comments in the article are enlightening. The Gramm-Leach-Bliley Act (1999) repealed part of the Glass-Steagall Act. which "was put in place in 1933 to control the rampant speculation that had helped cause the collapse of banking at the outset of the Depression, and to prevent such consolidation of the banks that the nation had all its eggs in one fiscal basket. Gramm-Leach-Bliley reversed those rules, allowing not only more bank mergers but for banks to become directly involved in the stock market, bonds and insurance. Remember the bit about how S&Ls failed because they didn't have the regulations that protected banks? After Gramm-Leach-Bliley, banks didn't have that protection either.

"Gramm wasn't done. The next year he was back with the Commodity Futures Modernization Act, which was slipped into a "must pass" spending bill on the last day of the 106th Congress. This act greatly expanded the scope of futures trading, created new vehicles for speculation and sheltered several investments from regulation.

(See part 2)

itsabouttime writes:

Part 2:
"As with both Gramm-Leach-Bliley and Garn-St. Germain, large parts of this bill were written by industry lobbyists. This included the "Enron loophole" that exempted energy trading from regulation, and was written by (big surprise) Enron lobbyists working with Gramm. Not coincidentally, Senator Gramm, the second-largest recipient of campaign contributions from Enron, was also key to legislating the deregulation of California's energy commodity trading.

"Thanks to this fortunate trifecta of Gramm-crafted legislation, Enron was able to create "EnronOnline" and trade electricity in California with absolutely no oversight or transparency. They quickly worked out how to game the system. Previously, there had been only one Stage 3 rolling blackout in the history of California. Within months, the system had been manipulated by traders to generate thirty-eight such blackouts and wholesale electrical prices had gone up more than 3000 percent. Despite production capacity equal to four times the demand during winter, energy traders even engineered a blackout in mid-January."

For those of you paying attention, Phil Gramm is quite likely the fox McCain will put in charge of the hen house.

"Once is happenstance. Twice is coincidence. Three times is Enemy Action." --Auric Goldfinger

run26pt2miles writes:

The main issue is credit. Credit & collapse of banking will occur within a few weeks. Small & medium business will start to close (jobs??)..... US & other countries will undergo a major correction with/without a bailout "Wall St". 1.4 tillion was lost in few hours. Credit "frozen" is a much larger problem..... it's nearly to late.....

madlex#220611 writes:

If this be the case, why did barney frank and chris dodd keep saying that fannie and freddie were in good shape a couple of years ago when McCain kept saying that we needed tighter controls. Also, who are the top receivers of funds from fannie and freddie - can some of them be obama, kerry, and a few others that were the reason for the failures.

nisandjay#105948 writes:

I heard a suggestion the other day that sure sounds good to me. Instead of 700 Billion to bail out Wall street, how about giving every American 1 million dollars each? 300 MILLION versus 700 BILLION! Look at the savings there! Just think, everyone could pay cash for their homes, cars, etc, eliminating foreclosures..all homeowners and wannabe homeowners would be pumping that cash back in the economy and not even need a freaking loan to do it. Save the rest, keep working, pay cash for everything. Seems to me the only losers would be the huge banks that are now in trouble that caused this mess in the first place with their outrageous lending practices and greed.

I know, I am just dreaming....this country is run on credit and greed....and therein lies the root of the problem.

citizen_voice writes:

bottom line is that all of congress failed to protect us from this diaster. they should have know, as we all know, that you have to live within a budget. they shouldn't have allowed the financial giants to over spend / lend. and now they want us, the tax payer, to bail them out.

congress has no economical or moral standards, and we need to fire as many of them in November. say no to the presidential nominees, and write your own nominee.

typeallnegative writes:

redo your math.

mikie1953#14626 writes:

Posted by nisandjay on September 30, 2008 at 7:31 a.m. (Suggest removal)


Umm, you may want to check your math. You lost quite a few decimal places there. $300 million would be $1 for every American, not $1 mil.

Noah writes:

My (small and shrinking) money market 401K account has been dropping in value all year. Yesterday it went down another good chunk.

Those of you who are claiming that the failure of congress to pass legislation that would stabilize the markets is a victory are not seeing the forest for the trees, in my opinion.

We can discuss all the reasons how this mess came to pass and we can vote our opinions at the polls in a matter of weeks. In the meantime, individual taxpayers (not just wealthy wall street barons) are watching their hard-earned savings dollars decline. There will be employers who will not make payroll this week because their revolving lines of credit (set up to offset accounts receivable) are frozen.

Whatever gets all over the "big cats" is going to trickle down all right.

Formerlyanotherguy writes:

You Tube banned this video unfairly. Take some time to watch the updated version (be ready to hit the pause button).

I was criticized yesterday for not "taking a stand" and "relying on a You Tube video" to make my point. But hey! This says it all. And it does so without namecalling.

Shutterbug...You make a good arguement but as you can see, some people think there was something else that caused this mess.

If you are undecided, please watch this video. There will be several people come right back and call it propaganda, and lies, and so on...but decide for yourself. Take the time to research both this claim and the claim shutterbug made. THEN DECIDE FOR YOURSELF.

For those that don't like this video, don't watch it. I'm not looking to have a shootin' match...just want to make sure people see all sides.

royrogers (Inactive) writes:

Everybody went to the track expecting their horse to be the one. Not to Worry, No Risk involved, A Worthless Congress will cover everyone's bets.--I really do not expect the bailout to work, but just put more funny money into play, and delay the end game.

stopwhining writes:

Mikie1953....there are more than 300 Americans...WOW!
This is not a republican or democratic problem. Iti is America's problem, caused by both parties and will have to be solved by not only both parties but also by all Americans. First of all, we are going to have to "bite the bullet" and stop living off of credit. It was bad enough when people started using credit to buy second and third cars, but now we use it to buy fast food. Most Americans are living way beyond their means. Adjusting this means that sales will go down, jobs wil be lost, more homes will be defaulted on and the spiral will continue until we hit bottom. We aren't there yet. The bill to shore up banks so that we all don't loose everything is neccessary, but it won't stop the impending recession/depression. We need to stop spatting over politics and show some maturity in dealing with this crisis.

MoonRose (Inactive) writes:

We no longer have a government by the people for the people. It has become a government by the politicians for the central bank, big corporations and wall street. It's time for a major overhaul to how our government works. Stop throwing good money after bad, and allow the common man to decide how our taxes are spent. Take it away from the politicians who are favoring porkbelly lobbyists. Put all that wasted money back into the pockets of the common, hard working men and women of America.

itsabouttime writes:

Sure, let's blame the Democrats for this mess. Newsflash: Republican-controlled Congress (both houses) passed the Gramm-Leach-Bliley bill, Republican Reagan's administration started the 1980's downturn and crash with the Garn-St. Germain bill, and Republican Hoover was president in 1929. Does anyone see a pattern?

Paulson and Bernanke concocted this POS thinking they could hoodwink us with their "sky is falling" BS and Bush went along. Think about it. They insisted this private enterprise escape hatch out of their quagmire must be passed immediately. NO discussion, just do it. "The Daily Show" compared Bush's speech urging us to swallow this bitter pill and his speech scaring us in 2003 about WMD and Iraq. It's the same speech!! Fool me once, shame on you. Fool me twice, shame on me.

Both Houses of Congress were Republican-controlled from 1995-2007. The Presidency has been Republican since 2001. Blaming the Dems for what has been 10 years in the making is just crap. The reason it appears this Congress has done nothing is Bush. Not once did Bush exercise his veto power until Democrats had a majority, just not large enough to override his vetoes.

There might be an upside to this - maybe now all that junk mail begging us to open credit card accounts will stop!

royrogers (Inactive) writes:

Stopwhining--Good Post!

itsabouttime writes:

Formerlyanotherguy, the YouTube video is interesting but obviously slanted with the pick and choose facts. It doesn't point out that the Republican-controlled Congress passed legislation to take away oversight. The deregulation legislation undermined the bills meant to help lower income families own affordable housing.

The intent of the legislation from Carter's administration was humanitarian, but Wall Street got greedy and, with the help of Reagonomics, figured out how to make more money.

5% of US population controls 95% of the wealth. Golden parachutes should be outlawed. It is obscene that CEOs instrumental in this mess come out with a fortune while their employees lose everything and are on the unemployment line.

littleants writes:

Am I the only one who finds this quote from above disturbing "Customers using credit cards to make purchases won't buy as many goods. Then stores won't stock as much, affecting our system of warehousing, transportation and production. That in turn will affect employment, which will continue to trigger fewer purchases." So finally people will have to actually HAVE the money they spend and that is going to cause crisis in our economy. Maybe it is about time we all learn a little personal fiscal responsibility. There are worse problems in the world then credit being difficult to obtain and people not spending more then they make buying stuff they don't need. It is time America wakes up to its materialism as an unsustainable lifestyle.
