Every day it seems there is something in the news about Wall Street and the Federal buyout plan, but taxpayers around the country are confused about this complicated legislation and how it will impact their daily lives. Fortunately, the financial experts at CNN.com have gathered the following list of common questions about the bailouts and provided informative answers.
1. Why did lawmakers reject the bill?
Many lawmakers, especially on the Republican side of the House, had voiced concerns about the $700 billion cost to U.S. taxpayers, arguing that ordinary citizens were being asked to foot the bill to clean up a mess created on Wall Street. Fortune magazine's Washington bureau chief Nina Easton said that many lawmakers, facing re-election in November, feared a backlash among voters if they backed they plan.
"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," said Republican Congressman John Culberson. Other Republican free market advocates argued that the bill would have been a blow against economic freedom.
On the Democratic side, there were concerns that the bill did not provide enough protection for taxpayers. Others said the legislation had been rushed through without due consideration. "Like the Iraq war and Patriot Act, this bill is fueled by fear and haste," said Democrat Lloyd Doggett.
2. What are the consequences?
Ahead of the vote, backers of the bailout plan had argued that urgent action was necessary to underpin the foundations of the entire U.S. economy. Billionaire Warren Buffett said that failure to agree a plan would leave the U.S. facing the "biggest financial meltdown in American history." In a televised address, U.S. President George W. Bush said that without immediate action by Congress, "American could slip into a financial panic and a distressing scenario could unfold."
But the immediate consequences were felt most sharply in the financial markets, already badly bruised by weeks of heavy losses. Approximately $1.2 trillion had been wiped off the market value of U.S. stocks by the close of Monday trading with the Dow Jones index suffering its worst ever points loss, losing 778 points -- a seven percent slide.
3. What are the international consequences?
International financial institutions have been hurt as badly as those in the U.S. by the credit crisis and banks and stock markets all over the world face fresh pain because of the failure of the rescue plan. UK Prime Minister Gordon Brown, who last week urged the U.S. to take "decisive action" to stem economic losses," described the result of Monday's vote as "very disappointing."
Belgium's Dexia on Tuesday became the latest bank to be bailed out by government funding with the governments of Belgium, the Netherlands and Luxembourg injecting $9.2 billion into the business to keep it afloat. The move came just two days after the same countries pumped $16.4 billion into failing insurance company Fortis. Iceland's government has also nationalized the country's third largest bank, Glitnir. Ireland's government said Tuesday it would guarantee all deposits in Irish banks following a massive fall in the value of banking stocks.
In Asia, the Bank of Japan pumped another 2 trillion yen ($19.23 billion) into money markets Tuesday as share prices across the continent fell heavily in response to losses on Wall Street. Central banks in the U.S., Europe and Asia have injected hundreds of billions into markets in recent weeks in an effort to boost liquidity and encourage trading. In Moscow, Russian stock exchanges were suspended for several hours after shares had plummeted. Key indices in Europe were mixed.
4. What happens next?
Treasury Secretary Henry Paulson says he will continue to work with congressional leaders to draft a plan acceptable to lawmakers and members of the House will likely be asked to vote again before the end of the week -- possibly on an amended plan including more protection for taxpayers' money. Those who voted against the plan can expect to be courted intensely in coming days.
White House spokesman Tony Fratto said: "We think the mechanisms in this plan were the best to deal with the crisis that we are facing. The core of this plan we think will solve the problem; it was big enough and substantial enough in terms of what we were trying to do... So this plan really needs to get done to give the Treasury Secretary the tools he needs to prevent our economy from slipping... The facts are that America's credit system is broken and it will be broken until we take the steps to fix it."
5. How does this affect the banks?
The financial landscape has already been radically transformed by the collapse in U.S. house prices and the subsequent credit crunch with investment bank Lehmans Brothers going bankrupt, Merrill Lynch being bought out by Bank of America and the U.S. government intervening to prop up mortgage lenders Fannie May and Freddie Mac and insurance giant AIG.
The failure of the bailout plan will only undermine confidence in the banking system further, pushing more banks into trouble as customers withdraw their money. "They have to pass some sort of bill otherwise soon it's going to get down to the point where people actually take money out of the bank and put it in their mattress," trader Wayne Carson told CNN.
6. How does this affect the rest of us?
The credit crunch has already affected the entire economy with "Main Street" already feeling the squeeze from rising fuel prices, rising food prices and rising unemployment. Many economists fear the U.S. is heading for recession. With banks unable or unwilling to lend to each other until the credit crisis eases up, many companies may be unable to borrow the money they need to pay their weekly bills, including salaries. The likely consequence is further job losses.
"This is not about suits on Wall Street making their salaries, this is about financial institutions who loan money to your bank so that you can get a loan or you can buy a car or you can get a mortgage or you can get a credit card... this is our financial system that is freezing up," said CNN senior business correspondent Ali Velshi.
7. Should I panic?
"Panic probably doesn't help us out very much but a recession really indicates that jobs ends up being lost," said Velshi. "Right now we've lost 605,000 jobs (in the U.S.) this year and economists expect that to continue. Unemployment will continue to grow, home prices will continue to drop and consumer credit will get tighter.
(Federal Reserve Chairman) Ben Bernanke said if we don't pass this plan we may go into a deep recession. We've already heard from some economists who think we are already in a recession and that it could get deeper.... What he should have said is that if we don't pass this plan we may go into a deep recession but we may go into a deep recession anyway... This is not going to be a solution to a recession, this is a solution to a very particular financial crisis that we are under going right now."