Monday AM October 6th, 2008

The 700-billion-dollar government bailout of the financial industry now has the signature of President Bush. Ed Mayberry reports.

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The House, which last Monday rejected an earlier version of the bill and sent stocks tumbling, gave its approval last Friday.  Senate approval came last Wednesday night.  Barbara Ostdiek is an associate professor of finance and academic director of the El Paso Corporation Finance Center at Rice University.  She says the problem has been the reluctance of banks to lend to one another, which affects everything else.

“We are seeing a tougher environment already for corporations accessing the capital that they need, whether for long-term investment or for short-term working capital issues.  It’s not gone, but it’s definitely a tighter environment.  For households, the issue is–if you need a car loan, a loan for tuition, buying a new house, building a house–how easily we’ll be able to access that credit.  But if you’re a good credit and if you are able and willing to pay a higher interest rate, the capital is still there.  The concern is, will that be the case three months from now.”

Ostdiek says it’s been hard to separate the politics from economic science as Congress grappled with the credit crisis.  She says these are exciting times for those interested in the economy.

“I was in the real world in the 1987 stock market crash, and so that was an event that I’ll never forget.  But it was very different from this, in terms of the suddenness with which it came on and then relative quick recovery from that more isolated stock market event, without spillover into the broader financial institutions.  And then certainly there have been other very volatile times.  The uniqueness about this so far is the level that it has affected these financial institutions and their ability to access credit and remain as going concerns.”    

Even before last Friday’s vote, the White House tried to dampen optimism about its immediate impact on the economy.  A spokesman says it’s not aimed at giving a boost to the economy, but only at preventing a crisis in the economy. 

Ed Mayberry, KUHF Houston Public Radio News.

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