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President Bush and Senate leaders of both parties vowed on Tuesday to work toward quick approval of a financial bailout plan despite the House’s rejection of a $700 billion proposal that the White House had negotiated with Congressional leaders of both parties. “We are at a critical moment for our economy,” the president said. “Congress must act.” Senators Harry Reid of Nevada, the Democratic majority leader, and Mitch McConnell of Kentucky, the Republican minority leader, echoed the president’s determination on Tuesday. “We are committed to keeping the progress on this rescue package moving forward,” Mr. Reid said. “In the coming days, I will continue doing everything possible to see that this dire and avoidable financial crisis has the best possible outcome.” House prices in 20 U.S. cities declined in July at the fastest pace on record, signaling the worst housing recession in a generation had yet to trough even before this month's credit crisis.
Appearing drawn and frustrated, Bush said in remarks at the White House that this is a "critical moment" for the U.S. economy. He noted that yesterday's single-day loss on the stock market, estimated at more than $1 trillion, was greater than the highest estimated cost of his administration's bailout plan. "The consequences will grow worse each day if you do not act," Bush said, addressing dissident lawmakers. He added a moment later: "Our economy is depending on decisive action from the government...This is what elected leaders owe the American people." "Our country is not facing a choice between action and the smooth functioning of the free market. We are facing a choice between action and the real prospect of financial hardship" that will be felt across the board, Bush said. "I am disappointed by the outcome" of the House vote, Bush said, "but I assure our citizens and citizens around the world that this is not the end of the legislative process." The S&P/Case-Shiller home-price index dropped 16.3 percent from a year earlier, more than forecast, after a 15.9 percent decline in June. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.
The housing slump is at the center of the meltdown in financial markets as declining demand pushes down property values and causes foreclosures to mount. Banks will probably stiffen lending rules even more in coming months to limit losses, indicating residential real estate will keep contracting and consumer spending will continue to falter.
``The fact that house prices quickened their slide before the worst point in credit markets hit this month does not bode well,'' said Derek Holt, an economist at Scotia Capital Inc. in Toronto.
Home prices decreased 0.9 percent in July from the prior month after declining 0.5 percent in June, the report showed. The figures aren't adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.
More Cities Down
Prices dropped in 13 cities month-over-month, compared with 11 in June. Las Vegas saw values fall 2.8 percent in July, the largest decline.
Economists forecast the 20-city index would fall 16 percent from a year earlier, according to the median of 23 estimates in a Bloomberg News survey. Projections ranged from declines of 14.5 percent to 16.5 percent.
Compared with a year earlier, all 20 areas showed a decrease in prices in July, led by a 30 percent drop in Las Vegas and a 29 percent decline in Phoenix.
``While some cities did show some marginal improvement over last month's data, there is still very little evidence of any particular region experiencing an absolute turnaround,'' David Blitzer, chairman of the index committee at S&P, said in a statement.
Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.
Other reports show price declines continue. The National Association of Realtors said Sept. 24 that the median price of an existing home fell 9.5 percent in August from a year earlier, compared with an 8 percent drop in July. The following day, the Commerce Department said the median price of new homes fell 6.2 percent in August from a year earlier, following a 4.6 percent drop the prior month.
Sales of previously owned homes fell 2.2 percent in August from the prior month and were 32 percent below their historic high reached in September 2005. Declining home construction has subtracted from growth since the first quarter of 2006, pushing the economy to the brink of a downturn.
U.S. homebuilders, buffeted by at least $19 billion in losses since 2006, will ask lawmakers to pass a $15,000 tax credit for all homebuyers, replacing a $7,500 incentive enacted earlier this year that they contend failed to stimulate demand.
``Our members are really hurting,'' Jerry Howard, the chief executive officer of the National Association of Home Builders, said in an interview yesterday. ``The tax credit passed in July seems to have failed to have sparked interest.'' ..
It is our responsibility today, to help avert that catastrophic outcome. Let us be clear: This is a crisis caused on Wall Street. But it is a crisis that reaches to Main Street in every city and town of the United States. It is a crisis that freezes credit, causes families to lose their homes, cripples small businesses, and makes it harder to find jobs. It is a crisis that never had to happen. It is now the duty of every member of this body to recognise that the failure to act responsibly, with full protections for the American taxpayer, would compound the damage already done to the financial security of millions of American families. Over the past several days, we have worked with our Republican colleagues to fashion an alternative to the original plan of the Bush administration. I must recognise the outstanding leadership provided by [the chairman of the House financial services committee and Democrat of Massachusetts] Barney Frank, whose enormous intellectual and strategic abilities have never before been so urgently needed, or so widely admired. I also want to recognise [Illinois Democratic Republican] Rahm Emanuel, who combined his deep knowledge of financial institutions with his pragmatic policy experience to resolve key disagreements. Secretary Paulson deserves credit for working day and night to help reach an agreement, and for his flexibility in negotiating changes to his original proposal. Democrats insisted that legislation responding to this crisis must protect the American people and Main Street from the meltdown on Wall Street. The American people did not decide to dangerously weaken our regulatory and oversight policies. They did not make unwise and risky financial deals. They did not jeopardise the economic security of the nation. And they must not pay the cost of this emergency recovery and stabilisation bill. So we insisted that this bill contain several key provisions. This legislation must contain independent and ongoing oversight to ensure that the recovery programme is managed with full transparency and strict accountability. The legislation must do everything possible to allow as many people to stay in their homes rather than face foreclosure. The corporate CEOs whose companies will benefit from the public's participation in this recovery must not benefit by exorbitant salaries and golden parachute retirement bonuses. Our message to Wall Street is this: the party is over. The era of golden parachutes for high-flying Wall Street operators is over. No longer will the US taxpayer bail out the recklessness of Wall Street. The taxpayers who bear the risk in this recovery must share in the upside as the economy recovers. And should this programme not pay for itself, the financial institutions that benefited, not the taxpayers, must bear responsibility for making up the difference. These were the Democratic demands to safeguard the American taxpayer, to help the economy recover, and to impose tough accountability as a central component of this recovery effort. This legislation is not the end of congressional activity on this crisis. Over the course of the next few weeks, we will continue to hold investigative and oversight hearings to find out how the crisis developed, where mistakes were made, and how the recovery must be managed to protect the middle class and the American taxpayer. With passage of this legislation today, we can begin the difficult job of turning our economy around, of helping those who depend on a growing economy and stable financial institutions for a secure retirement, for the education of their children, for jobs and small business credit. Today we must act for those Americans, for Main Street, and we must act now, with the bipartisan spirit of cooperation which allowed us to fashion this legislation. This not enough. We are also working to restore our nation's economic strength by passing a new economic recovery stimulus package, a robust, job-creating bill that will help Americans struggling with high prices, get our economy back on track and renew the American dream. Today we will act to avert this crisis, but informed by our experience of the past eight years, with the failed economic leadership that has left us less capable of meeting the challenges of the future. We choose a different path. In the new year, with a new Congress and a new president, we will break free with a failed past and take America in a new direction to a better future..
John Boehner, the Republican minority leader, called the measure "a mud sandwich" but urged members to reflect on the damage that a defeat of the measure would mean "to your friends, your neighbors, your constituents" as they might watch their retirement savings "shrivel up to zero."
Sixty-five Republicans joined 140 Democrats in voting for the measure, while 133 Republicans and 95 Democrats voted against it. "The legislation has failed," Speaker of the House Nancy Pelosi said at a news conference after the vote. Some Republicans seemed to blame Pelosi's speech from the floor, which attacked Bush's economic policies, for the defeat.
Defying President Bush and the leaders of both parties, rank-and-file lawmakers in the House on Monday rejected a $700 billion economic rescue plan in a revolt that rocked the Capitol, sent markets plunging and left top lawmakers groping for a resolution.
The stunning defeat of the proposal on a 228-205 vote after marathon talks by senior Congressional and Bush administration officials lowered a fog of uncertainty over economies around the globe. Its authors had described the measure as essential to preventing widespread economic calamity. The markets began to plummet even before the 15-minute voting period expired on the House floor. For 25 more minutes, uncertainty gripped the nation as television showed party leaders trying, and failing, to muster more support. Finally, Representative Ellen Tauscher, Democrat of California, pounded the gavel and it was done.
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n Sunday evening, the House Republican working group, which stringently opposed earlier drafts of the plan and offered a counterproposal, indicated it would support the bill, and its members are encouraging other Republicans in the House to do the same. "Nobody wants to have to support this bill, but it's a bill that we believe will avert the crisis that's out there," House Minority Leader John Boehner, R-Ohio, told reporters. But the bill did draw some opposition during the morning debate. Rep. John Culberson, R-Texas, said the measure would leave a huge burden on taxpayers. "This legislation is giving us a choice between bankrupting our children and bankrupting a few of these big financial institutions on Wall Street that made bad decisions," he said. Other conservative Republicans argued the bill would be a blow against economic freedom. Thaddeus McCotter, R-Mich., said the bill posed a choice between the loss of prosperity in the short term or economic freedom in the long term. He said once the federal government enters the financial market place, it will not leave. "The choice is stark," he said. But there were also Democrats who opposed the bill for not doing enough to help those who taxpayers facing foreclosure or needing unemployment benefits extended, or taxing Wall Street to pay for the rescue package. "Like the Iraq war and patriot act, this bill is fueled by fear and haste," said Lloyd Doggett, D-Texas. The crisis and a proposed fix Banks and Wall Street firms, worried about both their own needs for cash and the condition of other institutions, essentially stopped loaning money to one another in recent weeks. That choked off the money being made available on Main Street in the form of mortgage loans, business loans and other consumer borrowing. The crisis stems from problems in mortgage-backed securities, which saw their value plunge as home prices have gone into their worst slide since the Great Depression and foreclosures have soared to record levels. In turn, the market for trillion of dollars worth of those securities held by major firms evaporated, sending them down to fire sale prices and raising the risk of widespread failures among the nation's major financial firms. Under the plan, Treasury will buy the mortgage backed securities, either directly from the firms or through an auction process. It may also arrange to provide guarantees for the securities up to their original values in return for premiums they would charge current holders of the securities. To make the legislation more politically palatable, the bill calls for the government, as an owner of a large number of mortgage securities, to exert influence on loan servicers to modify more troubled loans to help prevent additional foreclosures. It also provides that the government will take equity in the firms that sell the securities to the government, and limits pay packages for top executives. The legislation comes amid great upheaval in the nation's financial system. On Monday morning, the Federal Deposit Insurance Corp., which insures deposits at failed banks, arranged for the sale of the banking assets of Wachovia (WB, Fortune 500), the nation's No. 4 bank holding company, to Citigroup (C, Fortune 500) for $2.2 billion in stock. That follows three weeks of other shocks: the Treasury Department's seizure of mortgage finance firms Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500); Wall Street firm Lehman Brothers' bankruptcy filing; rival Merrill Lynch (MER, Fortune 500) purchase by Bank of America (BAC, Fortune 500). In addition, the Fed bailed out insurance giant American International Group (AIG, Fortune 500), loaning it $85 billion in return for a nearly 80% stake. while Washington Mutual (WM, Fortune 500), the nation's largest savings and loan, became the largest bank failure in history.
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