Stock Market Information

Well for better or for worse, the estimated $700 billion dollar bailout plan recently passed the House and the President’s desk as well today. The markets responded blandly, especially after a jobs report pegged losses at a seven and a half year high. President Bush spoke confidently about what this meant for the nation’s future:

“By coming together on this legislation, we have acted boldly to prevent the crisis on Wall Street from becoming a crisis in communities across our country,” Bush said less than an hour after the House voted 263 to 171 to pass the bill.

Not everyone was so optimistic, many Republicans like Senator Ron Paul raised concerns about what long term effects this bill could have for inflation and the value of the dollar. At a time when the government is already running the largest deficit in history, that seems to be a valid concern, but most politicians stressed that the crisis was severe enough to warrant it.

The new bill puts in some important changes to the market place. Most importantly it allows the Treasury Secretary to purchase up to $700 billion in “troubled” assets in order to free up the credit markets that have been paralyzed by mortgage securities that no one wants. No one apparently, except Uncle Sam.

Henry Paulson said that there would be swift action to put the bill into place and to carry out the plan as quickly as possible to get the money where it needed to go. The bill passed despite wide criticism by many Republicans thanks to “sweeteners” designed to entice votes from various states. These included a number of unrelated pork projects like tax breaks on wooden arrow makers and breaks for rum producers.

It’s sad to see that Washington, for all of it’s flare and dramatics, is still taking this law on as business as usual. If you’re curious, listed below are the provisions of the bill that are totally unrelated to the crisis:

The Taxpayers for Common Sense also reports that the proposal includes such mouthwatering morsels as these:

• Creation of a seven-year cost recovery period for construction of a motorsports racetrack: Track owners currently follow a seven-year depreciation schedule and write each year’s depreciation off their taxes. The IRS wanted to increase the depreciation timetable to 15 years, which would mean the track owner’s depreciation would be cut in half. The measure in the keeps the seven-year depreciation schedule for two years and would cost taxpayers $100 million.
• A refund of excise taxes to Puerto Rico and the Virgin Islands for rum: A $13.50 per gallon excise tax is placed on rum imported into the United States. The measure extends to December 31, 2009, a refund of $13.25 per gallon tax back to Puerto Rico and the Virgin Islands, which are both U.S. territories. The refund has been in place since the early ’90s. The measure would cost taxpayers $192 million.
• Income averaging for amounts received in connection with the Exxon Valdez litigation: The measure would allow the plaintiffs who won damages from Exxon Mobile for the oil spilled by the Exxon Valdez to average the award over three years rather than treating it as income in a single year. The measure was backed by Alaska Rep. Don Young and would cost taxpayers $49 million.
• Secure rural schools and community self-determination program: The program replaces revenue rural communities used to enjoy from the sale of federal forest land. The measure is sponsored by lawmakers from Oregon and Idaho. The program would cost taxpayers $3.3 billion.
• Deduction of state and local sales taxes: The measure allows citizens who do not pay state income taxes to deduct the amount of sales tax they pay over a year from their federal income tax for two additional years. States that benefit include Texas, Nevada, Florida, Washington and Wyoming. The measure would cost taxpayers $3.3 billion.
• Provisions related to film and television productions: In order to keep movie production in the U.S., production companies would be allowed to deduct the cost of producing the films from their taxes. Rep. Diane Watson, D-California, has been one of the program’s biggest supporters. The measure would cost taxpayers $478 million over 10 years.
• Extension and modification of duty suspension on wool products, wool research fund and wool duty refunds: The measure helps U.S. worsted wool fabric makers and clothing manufacturers. The bill extends provisions through 2014 or 2015 that were originally sponsored by Reps. Louise Slaughter, D-New York, and Melissa Bean, D-Illinois, in 2007. The measure would cost taxpayers $148 million.
• Extension of economic development credit for American Samoa: The measure would extend for two years provisions meant to help economic development in the U.S. territory of American Samoa. The measure would cost taxpayers $33 million.
• Transportation fringe benefit to bicycle commuters: The measure would allow employers to provide benefits to employees who commute to work via bicycle, such as help purchasing and maintaining a bicycle. The measure would cost taxpayers $10 million.

Well it appears that the $700 billion dollar bailout was not enough to convince investors that better times were on the way. A recent report on jobs helped to lead the market down as jobless claims went to a seven year high. In addition, there were fears that the House will once again strike the bailout plan down.

Credit also remained very tight, and Treasury prices continued to jump in price as more investors looked to lessen their appetite for risk. The Dow Jones Industrial Average dropped about 348 points. The S&P 500, for it’s part, fell about 4%.

The continuing concern is that even if the House manages to pass the bailout will it have enough of an in impact to free up an increasingly choked off credit market. A lot of experts have thrown their weight behind the bailout, including master investor Warren Buffett. If it fails to pass, he joked morbidly, “I may go back to delivering papers.” That helps to explain the gravity of our economic situation.