McCarthy ousted as US House speaker

This is an audio transcript of the FT News Briefing podcast episode: ‘McCarthy ousted as US House speaker’

[MUSIC PLAYING]

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, October 4th, and this is your FT News Briefing. The US is going through a historic leadership change.

US House of Representatives proceeding
The office of Speaker of the House of the United States House of Representatives is hereby declared vacant.

Marc Filippino
India tells Canada to withdraw more than half of its diplomats. Plus, the Chinese property giant Evergrande is having a no good, very bad month. I’m Marc Filippino, and here’s the news you need to start your day.

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Kevin McCarthy is the first ever leader of the House of Representatives to be ousted from his post. Eight of McCarthy’s fellow Republicans voted for a motion to vacate on Tuesday, along with 208 Democrats. The FT’s Lauren Fedora is back with us to talk about the repercussions of this vote. Hi, Lauren.

Lauren Fedor
Hi, Marc.

Marc Filippino
All right. So can you walk us through what happened yesterday?

Lauren Fedor
Yeah, it was a pretty dramatic turn of events on Capitol Hill. Late Monday, we knew that Matt Gaetz, the Republican congressman from Florida, was making moves to try and oust Kevin McCarthy. He was introducing something called a motion to vacate, which is basically a fancy term for this procedural tool to try to remove a speaker. One of the caveats with that tool is that it triggered a kind of 48-hour period in which the vote could be held. Come yesterday morning, Kevin McCarthy made clear that he was not going to delay. He was going to force this vote early.

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US House of Representatives proceeding
The House will be in order.

Lauren Fedor
And what we saw were two votes on the House floor. First, there was another procedural vote.

US House of Representatives proceeding
The question is on adoption of the resolution. Those in favour say I.

US House of Representatives proceeding
I (faint response).

US House of Representatives proceeding
Those opposed no.

US House of Representatives proceeding
No (resounding chorus)!

US House of Representatives proceeding
Gentleman from Florida . . .

US House of Representatives proceeding
I’d request the yeas and nays.

Lauren Fedor
And then in the ultimate vote, McCarthy did fail.

US House of Representatives proceeding
On this vote, the yeas are 216. The nays are 210.

Lauren Fedor
He was removed from his position, and that was the result of eight Republicans siding with all of the Democrats.

US House of Representatives proceeding
The office of Speaker of the House of the United States House of Representatives is hereby declared vacant.

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Marc Filippino
And Republicans have the majority in the House, which is why McCarthy was speaker. Who now leads the Republicans in the House of Representatives and is the next Speaker of the House?

Lauren Fedor
That is a great question. There is no Speaker of the House. You know, listeners may remember back in January when Kevin McCarthy was first elected speaker and that dragged on for 15 votes. The reason that went on so long is because the House can’t do anything else until they select a speaker. This grinds the wheels of legislating to a halt. You know, only a couple of days ago we were talking about the fact that lawmakers had narrowly averted a government shutdown. Remember, that was only a stop-gap measure till mid-November. Congress still needs to figure out how to fund the government in the longer term. They’re still wrestling with aid for Ukraine. All of that can’t really happen until the speaker issue is resolved.

Marc Filippino
Laura, put this into context for our international listeners. How big of a deal is this?

Lauren Fedor
It’s a huge deal. This is the first time this has ever happened in US history that a Speaker of the House has been removed in this way. Now, it’s important to remember here that McCarthy lost, but he lost even though the vast majority of the members of his own party wanted him to stay on. So it creates this really messy situation that could spell an impasse here. This could go on for quite a while if the Republicans aren’t able to either re-embrace McCarthy or come up with an alternative that will be satisfactory to the majority of the House Republican conference.

Marc Filippino
Lauren Fedor is the FT’s deputy Washington bureau chief. Thanks, Lauren.

Lauren Fedor
Thanks, Marc.

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Stocks and bonds saw a pretty significant sell-off yesterday. The Nasdaq Composite closed down a little less than 2 per cent. And the yield on 30-year US Treasuries hit a 16-year high. But the sell-off wasn’t just on this side of the Atlantic. European equities and government debt took a pretty noticeable hit on Tuesday too. Markets are finally coming around to the idea that interest rates are in fact going to stay higher for longer. Solid jobs openings data in the US yesterday drove that message home as the economy seems to be staying pretty strong.

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India has ordered dozens of Canada’s diplomats to pack their bags and leave the country. This comes after India announced a visa ban for Canadians. The push to remove diplomats really escalates tensions that are already extremely high between the two countries. A few weeks ago, Prime Minister Justin Trudeau said Canada was investigating whether Indian agents assassinated Hardeep Singh Nijjar. Nijjar was a Canadian Sikh separatist who was killed in June outside Vancouver. The Indian government has rejected the allegations. Canada has more than 60 diplomats in India. New Delhi wants the country to withdraw over half of them. Trudeau said on Tuesday that diplomats were necessary to work with the Indian government during this extremely challenging time.

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The fate of the Chinese real estate giant Evergrande is getting more and more uncertain. The company defaulted on its international debts two years ago and triggered a crisis in China’s property sector in the process. Since then, Evergrande has been trying to restructure, but legal troubles have thrown a wrench in that. Here to explain is the FT’s Shanghai correspondent Tom Hale. Hey, Tom.

Thomas Hale
Hi there.

Marc Filippino
All right, Tom, So what’s the latest on Evergrande?

Thomas Hale
It is in the process, or at least was in the process of approving a restructuring plan for its international bonds. And that plan was derailed about a week and a half ago because the China securities regulator launched an investigation into the company in August, or at least it was disclosed in August. The other major development that’s come to light in the last week or so is that the chairman and founder of Evergrande, Xu Jiayin, it’s quite difficult to phrase exactly what’s happened to him, but the company has put out a statement saying that he is under mandatory measures because of suspicion of illegal crimes.

Marc Filippino
So there is a lot going on here. And as you said, it’s jamming up the restructuring process. What kind of impact would it have on Evergrande and really the industry more broadly if it doesn’t restructure?

Thomas Hale
So the international restructuring of Evergrande has real significance. It relates to international views and confidence in the Chinese process of handling these type of situations. And if the process fails, there’s the possibility of legal action and a liquidation of some sort. And there’s also likely to be an even greater loss of confidence in mainland bonds from international investors than there already has been from this crisis so far.

Marc Filippino
And what about Beijing? What are they doing to manage Evergrande struggles?

Thomas Hale
Yes, so it’s extremely unclear what the role of Beijing has been in all this. Various official voices over the last few years have repeatedly emphasised the need to complete unfinished residential projects because in China the contention is to sell apartments and homes to home buyers not only before construction is finished but sometimes before it’s begun. When a lot of these developers started defaulting and were unable to finish their construction, a lot of, there was the risk of a lot of very angry home buyers. So it looks like in various ways that trying to prioritise completion of projects either through local banks, through pressure on local governments or through pressuring the developers themselves. But beyond that, and in particular in relation to the arrest of Xu Jiayin, whether it can be exactly described as an arrest or not, it’s still unclear what Beijing thinks about it.

Marc Filippino
Now, as I mentioned earlier, Tom, Evergrande struggles have had massive ripple effects on the property sector. What does it mean that this critical economic engine for China is kind of imploding?

Thomas Hale
Yeah, so far we’ve had a kind of two-year period of what can only be described as paralysis. The government initially was trying to tame the Chinese property industry, which had become extremely highly levered and showed signs of overheating prices. Now they’ve got the opposite problem, and transactions have fallen significantly. Prices are threatening to edge lower. So the government looks like it’s increasingly concerned and is winding back some of its measures. But we’re really still potentially in the early stages of this if prices begin to fall more significantly. If that happens, then, you know, we’re dealing with a kind of different order of magnitude of a of a crisis.

Marc Filippino
That was the FT’s Tom Hale. Thanks, Tom.

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Thomas Hale
Yeah, thanks so much.

Marc Filippino
You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.