As US lawmakers on Tuesday stood back to assess the House of Representatives’ dramatic rejection of the $700bn (€495bn, £385bn) bail-out package, they continued to come under a barrage of e-mail fire from constituents.
Public interest in the bail-out plan has fuelled an unprecedented level of e-mail and internet traffic to Capitol Hill that almost caused the House system to crash in the hours surrounding the vote on Monday.
Jeff Ventura, spokesman for the House’s chief administrative officer, said the system had been “on the precipice” of crashing. Assessing the volume, he said, was like “worrying about the number of drops in a tidal wave that has just hit you”.
Taking the public pulse on Tuesday, one of the key issues for lawmakers was whether voters who had opposed the bill would change their minds after the US stock market plunge on Monday.
Reached by the Financial Times, the offices of a number of Florida Republicans who voted against the bill said opposition remained strong. In contrast, the picture was more mixed in Michigan, where opposition appeared to have softened.
John Mica, a Florida Republican who voted against the package, said he had received 1,850 calls supporting his position and only 250 urging him to support the measure.
“I’m just trying to protect the poor guy that I represent. He doesn’t have any stocks, he doesn’t have any income, working like a dog to send dollars to Washington,” Mr Mica said in an interview. “How can I go back and say to him, after you’re working hard, I’m going to have you work harder to pay for somebody’s bad investment decision. I just can’t do that.”
A spokesman for Illeana Ros-Lehtinen, a Florida congresswoman, said the number of constituents expressing opposition to the package remained at 60 per cent, with the main concern being that “they don’t see it trickling down to Main Street”. The office of Jeff Miller, another Florida Republican, said 90 per cent of constituents who contacted the office remained opposed.
Charlie Keller, spokesman for Ginny Brown-Waite, also a Florida congresswoman, said that while there had been a “slight” increase in support after the vote, opposition remained at about 90 per cent. Pepper Pennington, spokeswoman for Tom Feeney, a Florida Republican, said the office had not received so many e-mails – again mostly in opposition – since immigration legislation in 2007 that failed because of concerns that it would provide an amnesty for illegal immigrants.
Ms Pennington said the sentiment of most callers was: “I pay my mortgage on time, I pay my taxes, why should I have to bail out the bigwig speculators on Wall Street?”
Other districts, however, saw a marked shift after the vote and stock market decline. Dave Yonkman, spokesman for Peter Hoekstra, a Michigan Republican, said the number of constituents voicing opposition to the bill fell from 90 per cent before the vote to about 50 per cent afterwards.
Jameson Cunningham, spokesman for Thaddeus McCotter, a Michigan Republican, said the ratio of opponents to supporters calling the office had dropped from 100-1 before the vote to 3-1. Rebecca Mark, spokeswoman for Candice Miller, another Michigan Republican who opposed the package, said the number of constituents contacting the office who opposed the package had fallen from 99-1 before the vote to 70-30 afterwards.
Public opinion polls were also mixed. An ABC News/Washington Post poll conducted after Monday’s vote found that 47 per cent of the public were opposed to the bill, while 45 per cent were in favour of the package. More than 40 per cent of respondents blamed the Republicans for the failure of the package to pass, while 21 per cent said Democrats shouldered responsibility.
A new poll by the Pew Research Center found that 45 per cent said the $700bn package was the right solution, but that support had fallen from 57 per cent more than a week ago.
“Be real careful of the unpopularity of the bail-out,” said Thomas Mann of the Brookings Institution. “There is no question that those who are mobilised are unanimously against it. But the public is against it until they come to realise that inaction means economic disaster.”
Another factor that further complicated gauging public sentiment on Tuesday was the 500 point rebound in the Dow Jones after the plunge on Monday.
Bruce Josten, chief lobbyist at the US Chamber of Commerce, said there was a misconception among the legions of Americans who besieged lawmakers with calls to vote against the proposal because of the word “bail-out”, and questioned whether people should be popping champagne corks.
“Those same people are going to shudder in about five days when they open their [pension] statements.”
Additional reporting by Daniel Dombey and Stephanie Kirchgaessner
What are the alternative rescue plans?
Suspend banks’ ‘fair value’ accounting rules
The idea Suspending current “fair value” accounting rules that require banks to mark their holdings to current market prices. As the housing market has weakened and large sections of the credit markets have frozen, the plunging values of banks’ holdings has weakened their balance sheets and hit profits.
Easing the rules could allow companies to report their holdings at a price based on their estimates of what they might finally be worth, not at the current depressed market price.
This idea is backed by a number of banks and industry lobbying groups and is gaining support from politicians alarmed at the scale of the crisis.
Will it work? Supporters believe it will help put a floor under the market and ease the strain on banks.
But regulators, investors and accountants, who have largely opposed changing the rules, do not think so. They believe it would make banks’ holdings less transparent and thereby introduce new investor suspicion and distrust, meaning asset values, including bank stocks, could fall further still. Jennifer Hughes
Take equity stakes in Wall St companies
The idea Rather than buying toxic assets from the troubled financial institutions, the government could buy those institutions, or parts of them, directly. This could be done in a number of ways and with a variety of degrees of intrusion. For those companies that do not issue stock, it could take “senior debt” – loans that are paid off before other investors get their money back. More radically, the government could take the approach of the Swedish government in dealing with the banking crisis in the early 1990s and temporarily take over large parts of the banking system.
Will it work? The advantage of this tactic is that it could help to neutralise the criticism that taxpayers are bailing out Wall Street without getting any of the upside in return. Modest versions of the plan could also have a lower upfront cost than the $700bn asset-purchasing scheme. But if the Republicans in the House of Representatives regard the Treasury buying toxic assets as too close to financial socialism, they are likely to balk even more at the government taking over banks itself.
Introduce temporary cuts in corporate tax
The idea One suggestion that the House Republicans have made is to cut capital gains taxes. Taxes would be suspended for a two-year period to encourage the holders of assets to sell them off, thus freeing up the markets. This plan is predicated on the idea that the asset markets have been frozen by the unwillingness of sellers to offload their toxic securities.
Will it work? Unfortunately, economists have pointed out what appears to be a rather large flaw in the plan. Although no one knows what fair-value prices are, they are highly likely to be well below the prices that most of the institutions paid for the assets. Thus, there is in any case no capital gains tax to be paid if they are sold. Worries about being taxed on gains are almost certainly among the very least of the concerns that are keeping the securities markets frozen. And, if the plan is supposed to stimulate dealing in other assets, it is not clear how that would help the logjam in dealing mortgage-based securities and derivatives, which have been identified by the Treasury as being at the heart of the problem. Alan Beattie