[R-G] House Approves Bailout on Second Try + Markets Unexcited

[Yoshie Furuhashi]

<http://www.nytimes.com/2008/10/04/business/economy/04bailout.html>
October 4, 2008
House Approves Bailout on Second Try
By DAVID M. HERSZENHORN

WASHINGTON — The House of Representatives gave final approval on
Friday to the $700 billion bailout for the financial system, reversing
course to authorize what may be the most expensive government
intervention in history.

The crucial vote was 263-171, passing by a comfortable bipartisan
margin. Most Democrats voted in favor (172 yeas to 63 nays), while a
slighter majority of Republicans voted against (91 yeas to 108 nays).
Every member of the House voted. (There is one vacancy, created by
recent death of Stephanie Tubbs Jones of Ohio.)

At 1:21 p.m., applause and cheers echoed through the House chamber as
the number of "aye" votes crossed the threshold needed for passage
with just seconds remaining in the official 15-minute voting period.

The Senate approved the plan on Wednesday night by a vote of 74 to 25,
after adding a portfolio of popular tax provisions. The bill now heads
to President Bush who is eager to sign it.

Financial markets, already weighed down by another round of bleak
economic data, including a report showing 159,000 jobs were lost in
September, had a positive but hardly exuberant response to the House
action. Ahead of the vote, the Dow Jones industrial average was up
about 290 points but the market gave up almost all of those gains
within 30 minutes after the final vote.

How They Voted:
<http://www.nytimes.com/ref/washington/ROLLCALL.html?currentChamber=house&currentSession=2&currentCongress=110&currentRoll=681>

<http://ap.google.com/article/ALeqM5gXJkHBkXwQWtPp4EaKg_ly_7cM_AD93J5PE81>
Credit markets still tight after bailout approval

By MADLEN READ – 24 minutes ago

NEW YORK (AP) — The stranglehold on the credit markets remained tight
Friday after the House approved a revised $700 billion financial
bailout, with investors still dubious about the plan's ability to
boost the faltering U.S. economy.

Treasury bill demand was high, keeping the yield on the 3-month bill
at around half a percent.

Market participants have been regarding the rescue plan as a strong
medicine for what's ailing the financial system, but not a cure-all.

When the Treasury buys banks' risky assets, it should help alleviate
investors' worries about the institutions' solvency and free them up
to do more lending. But that process will be far from instantaneous,
and borrowing could remain very expensive for some time. With the
economy in such a weak state, lending to consumers and businesses will
still appear risky until certain factors — particularly employment and
the housing market — improve.

The Labor Department said employers cut payrolls by 159,000 in
September, the largest loss in more than five years, while
unemployment remained at 6.1 percent.

Layoffs are likely to keep piling up if it remains tough to find
credit. Spectrum Yarns Inc., a North Carolina textile company, said it
closed two plants and laid off 200 workers this week because it got
turned down by a North Carolina bank, a New York finance company, and
several private lenders.

And it's going to get even harder for individuals to get home loans.
Banks have gotten more stringent in their mortgage underwriting, and
Wisconsin's affordable-housing agency recently suspended making loans
for single-family homes because it was unable to sell tax-exempt
mortgage revenue bonds and raise capital.

On Friday, the London Interbank Offered Rate, or LIBOR, for 3-month
dollar loans rose to 4.33 percent from 4.21 percent Thursday. That
bank-to-bank lending rate has been rising all week, showing that banks
are growing less and less willing to lend out their cash for longer
than overnight.

LIBOR is tied to many consumer rates like adjustable-rate mortgages.

In one promising sign, overnight lending has gotten significantly
cheaper — LIBOR for overnight dollar loans plunged to a hair below 2
percent on Friday, the lowest rate in nearly four years, from 2.67
percent on Thursday.

That overnight rate is now below the Fed's key bank-to-bank overnight
lending rate, known as the target fed funds rate, of 2 percent. It
appears that central banks' decision to ramp up their lending to
financial institutions over the past couple weeks is having a positive
effect.

But that's little solace to borrowers who need a loan for longer than overnight.

Over the past week, the amount of short-term corporate debt known as
commercial paper on the market has plunged. And banks and investment
firms have borrowed in record amounts from the Federal Reserve's
emergency lending facility.

Money market mutual funds, usually the biggest buyers of commercial
paper, have run for safety lately after a money market fund "broke the
buck" two weeks ago due to its exposure to Lehman. When a fund breaks
the buck, it does not have enough assets to cover every dollar
invested in it. Instead of commercial paper, they've been investing in
Treasury bills.

"There's really no theme except the theme of survival," said John
Spinello, bond strategist at Jefferies & Co., referring to the
constricted trading in the credit markets Friday.

On Friday, the yield on the 3-month Treasury bill fell to 0.58
percent, down from 0.70 percent late Thursday. There has been no
let-up in demand for T-bills, seen as the safest assets around, even
though they are offering extremely weak returns.

An upswing in the stock market drew some investors out of longer-term
Treasurys Friday, however.

The 2-year note fell 11/32 to 100 13/32, with a yield of 1.80 percent,
up from 1.62 percent late Thursday.

The 10-year note fell 1 to 102 2/32, and yielded 3.75 percent, up from
3.64 percent.

The 30-year bond fell 1 6/32 to 104 22/32, and yielded 4.22 percent,
up from 4.16 percent.

(This version CORRECTS Corrects 4th graf to say Treasury buys assets,
sted Fed. Stands for BC-Bonds.)