Will the House Play Along?

"New life." That's how the Wall Street Journal this morning describes the significance of last night's Senate approval of the controversial $700 billion Paulson Plan to buy up questionable loans and home mortgages on the taxpayers' dime. Add-ons such as "an increase in bank deposit insurance limits, a suggested change to accounting rules, and a $150.5 billion package of unrelated personal and corporate tax cuts" appear to have done the trick in securing an overwhelming 74 to 25—yes, presidential candidates John McCain and Barack Obama returned to Washington to vote "aye" and whip up party support—victory for the bill. It is hoped the additions will be enough to sway reluctant House members. With the Senate passage, all eyes are again on the House, which the New York Times reports, is expected to vote on the sweetened bailout plan tomorrow. There is even optimism it will pass in the House this time around. The NYT says reluctant House Republicans and Democrats find the new bill more palatable than the one defeated on Monday. “The inclusion of parity, tax extenders and the F.D.I.C. increases has caused me to reconsider my position,”  Representative Jim Ramstad, a retiring Republican from Minnesota who opposed the plan on Monday, told the NYT. "All three additions have greatly improved the bill.” The Senate passage was not enough to lift investors' jitters, however. Asian and Pacific markets fell in early trading on Thursday while Europe posted mixed results at the open, CNN reports.

Meanwhile, Europe too is having major problems selling the idea of its own bailout plan, what Reuters described as a 300 billion euro ($416 billion) fund proposed by the French to shore up at-risk banks around the Continent. On Wednesday, French Finance Minister Christine Lagarde spoke of the urgent need to create a European safety net for its banks, the WSJ reports. The Germans would have none of it, though. According to Reuters, "Chancellor Angela Merkel said Germany 'cannot and will not issue a blank cheque for all banks, regardless of whether they behave in a responsible manner or not.' " Britain too is skeptical of a European bailout fund, the Financial Times reports, preferring instead to deal with precarious banks on a case-by-case basis while planning a version of its own Paulson Plan that will "include extended liquidity operations, government guarantees for mortgages, emergency guarantees of all bank funding, the creation of a 'bad' bank for troubled assets of failed banks."

The list of scalps claimed by tightening credit is growing longer. Las Vegas casino operators, stung by "the steepest slump in its history," have seen share prices fall by as much as 70 percent this year, and, the worst may not be over: credit tightening is delaying construction projects and crimping ongoing operations, BusinessWeek reports. Far from the Strip, spooked loan managers at the local bank are rejecting small business loans, even for candidates with solid credit, the NYT reports. U.S. auto sales, meanwhile, sunk to a 15-year-low with a double-digit decline in September, says the WSJ. The historically weak sales forced car sales chain CarMax to lay off 600 employees yesterday, AP reports. Newspaper publishers, already socked by a softening ad market, are finding it harder to service their mounting debt loads. The WSJ reports that the Minneapolis Star Tribune skipped a debt payment as it tries to restructure $430 million in borrowings. It all adds up to gloomy, jobless projections as analysts look closely at the government's monthly employment report due out tomorrow. CNNMoney, polling analysts, says 105,000 more jobs will have been shed in September, the largest monthly decline in five years. The unemployment rate sits at 6.1 percent; it could rise to 7 percent next year in some of the more pessimistic models, CNNMoney reports.

With the ominous signs of recession increasing by the day, there is a clamor on both sides of the Atlantic for an interest-rate cut. Even if Congress does pass the $700 billion bailout the Fed is considering the rate cut it has so far eschewed during the credit crunch, writes the WSJ. It reports that future markets have "priced for a high probability of a quarter or half percentage point cut in the federal-funds rate," before the end of October. What has completely spooked the Fed is the growing risk of "a severe recession—known as a 'tail risk' because its likelihood is small but its effect would be catastrophic." In Europe, the European Central Bank meets today and is contemplating a complete volte face by toying with a rate cut—if not today, by year-end—while in the United Kingdom, economists are urging the Bank of England to cut rates to head off what the Guardian refers to as "a deep and prolonged slump," keenly illustrated by the worst drop in manufacturing output since records began in the early 1990s. Meanwhile, to keep financial wheels in motion, both the ECB and Bank of England pumped more than $60 billion through overnight funds last night. The ECB says it "received nearly $71 billion in bids from 61 banks for the $50 billion," according to an AP report in the International Herald Tribune.

General Electric Co.—now there's an august multinational that should be able to ride out this credit crunch. Right? Wrong. Yesterday, Warren Buffett once more rode to the rescue with a $3 billion investment in GE, adding a boost of investor confidence to a company that is being dragged down by its once high-flying but lately hamstrung finance division (GE stock is down almost 35 percent this year.) "The deal is vintage Buffett: buying into a blue-chip company on favorable terms when its shares are depressed," notes the WSJ, adding: It "also dramatizes how the credit storm is prompting even the most stalwart companies to seek shelter."

Finally, we knew the Michigan housing market was bad, but $1.75 for a house in Saginaw? That's how much the "lucky" eBay bidder paid (sight unseen, it should be said) for an abandoned family home in Saginaw. Of course, nothing is as good as it seems, notes the Saginaw News. With back taxes, the new owner will end up paying $850.