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There is nothing like the loss of a trillion dollars or so in stock market value and complete paralysis of the world financial system to concentrate minds, but it took a little more than that in the seemingly parallel universe known as the US Congress. Just 96 hours after the House of Representatives sent shockwaves around the world by rejecting the $700bn troubled asset relief programme, it has passed it on the second go.
Those legislators who changed their votes cited improvements, including additional protection for bank deposits, but the real change came down to pocketbook issues and pork. Due to differing electoral cycles, only a third of the senators who voted on the bill on Wednesday night are up for re-election in 30 days, while all the congressmen who voted yesterday are.
Voters’ sense of outrage seemed to move inversely to the Dow Jones Industrials this week. Though the freeze in the money markets is abstract to them, the plunge in their retirement savings was not and middle-class anxiety thus trumped anger at Wall Street fat cats.
As for the pork, some of the $150bn in tax breaks attached to the Senate version of the bill seemed targeted with laser-precision at recalcitrant legislators. Take the provision that exempts wooden arrows from an excise tax, benefiting a company in Oregon where four representatives – a third of Monday’s vote shortfall – voted against the bill. The list of lard goes on and on and but seems worth it to secure a deal.
Now comes the tough part – actually turning the markets round. As debatable as the plan’s financial effect may be, its psychological impact is what will matter in the weeks it takes to implement. The normal market pendulum of fear and greed is jammed in extreme panic mode and will have to swing back soon in order to prevent lasting damage to the world economy.
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