Senate Evening Vote Ends Passes Bailout Plan, House Now Holds Keys

No Legislation Has Been So Closely Watched

The legislation heavily lobbied throughout the day by the White House, Treasury, Federal Reserve, and FDIC migrated from rhetoric of bailout, to rescue, to necessity to avoid another Great Depression. Senate debate, statements by House leadership, remarks by both Presidential candidates, and even the news media seemed to be lobbying the American people for support to this bill.

Despite strong opposition by many leading economists and free market advocates the weight of the market response and panic evoked by the House rejection of the original legislation seemed to have carried the day in the Senate.

Now the question remains where will this take us?

Pressure is Now on the House

The Senate pressure, mounting throughout the day Wednesday, has now turned back to the House of Representatives. Senate majority leader Harry Reid (R-NV) said in his statement following the Senate vote that he expected the House to follow suit.

Although the addition of extended FDIC deposit insurance coverage as well as various corporate and individual tax breaks is expected to entice Republicans to change their votes, there is concern.

Fiscally conservative House members are expected to show concern over the tax breaks that are expected to cost the government $150 billion in tax revenues. Meanwhile, some Republicans may remain opposed to the fundamental premise of the bailout.

However, the largest potential motivator for Representatives to change their Nay's to Yea's is the apparent swing in political sentiment from voters from opposition to support. The fear and immediate market ramifications that showed up in regular people's 401(k) and investment statements this week has lessened the potential backlash in tight House re-election races.

Some Clarity Returns to the Market

Regardless of the immediate or effective execution of the plan some clarity has returned to the market. Experts will now closely watch the markets for:

• Investors to pull back from the flight to safety in US treasury issues
• Investors to return to the equities markets
• Interbank lending to resume
• Consumers and borrowers to return to the markets and banks
• Liquidity to return to the larger credit markets

The House is expected to vote on Friday and then the financial markets will swing their attention to the Federal Reserves potential cut in interest rates for even more help.