If this week has been stressful for you because of midterms, just be grateful you weren't on Wall Street or in Washington, D.C. After a week of problems on Wall Street, Secretary of the Treasury Henry Paulson Jr. asked Congress to pass legislation enabling the Treasury to buy $700 billion worth of bad mortgages from troubled financial institutions to help increase the flow of credit in the industry.
Last Wednesday, President George W. Bush gave a primetime address pleading with Americans to support the bill because "our entire economy is in danger." Then lawmakers spent the weekend hammering out the details of what would have been the biggest federal intervention into the financial industry since the Great Depression.
But the bill failed in the House of Representatives in a vote of 205 to 228 on Monday, after which the Dow Jones plunged 777 points, the biggest single-day fall ever. Tuesday was spent debating alternatives to the bill with no immediate decision in sight when the Phoenix went to press Tuesday night.
For most students and professors at Loyola, life has proceeded as usual, but for those in the School of Business, classroom conversations have been punctuated by the distressing news from Wall Street and Washington.
"It's a complete mess right now," senior international business major Gordon Sims said. "I don't think anyone knows what to do."
Sims said his business classes have discussed the pros and cons of the proposed legislation along with how the financial crisis might affect students and the U.S. economy. Economics professor Mine Cinar, Ph.D., spends the first 20 minutes of her class discussing the financial crisis to keep students up-to-date. While the crisis is not directly affecting students right now, the future is uncertain.
"My tendency is to be pessimistic," Cinar said. "Definitely in the banking and financial field there won't be as many jobs as there were before."
"It's reasonable to assume some corporations will be cautious in hiring," economics and finance professor A.G. Malliaris, Ph.D., said. "Most of my students will be graduating in a year or a year and half and we all hope that by then the situation will be much better."
In Washington, politicians are still debating what is the best way to improve the situation.
"My logic leads me to argue that the U.S. government should make an effort to pass a new verison of the bill so that we proceed to stablize the system rather than continuing with the uncertainity," Malliaris said.
However, lawmakers have argued against burdening taxpayers with the responsibility of owning, managing and eventually selling these mortgage-backed securities the Treasury plans to purchase. Congressman Mike Pence (R-Ind.) argued "nationalizing every bad mortgage in America is not the answer."
"[The bailout bill] is causing taxpayers to bear the cost of the poor decisions of a select group of people," senior economics major Kyle Peyton said.
While a modified bailout is still on the table, other options are being discussed, such as making more Federal Deposit Insurance Corporation insurance available to bank customers, cutting short-term interest rates and changing the way mortgage-backed securities are valued.
"Something had to be done to keep credit markets functioning for homeowners, small businessmen and others dependent of credit," economics professor Louis Cain, Ph.D., said. "This was probably the best of several unpalatable alternatives. Those who voted against it [Monday] don't have a better answer, and we are now likely to end up with something not as good."
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