Last week, as the financial crisis brought the economy to its knees - in Rhode Island and across the nation - the Ocean State's four-person Congressional delegation all voted in favor of the Emergency Economic Stabilization Act of 2008, commonly known as the bailout package, with the hopes that it will help avert the worst effects of the crisis.
The bill in its original form was rejected by the House of Representatives in a Sept. 29 vote by a margin of 228 to 205. A revised version was approved by the Senate on Oct. 1 and the House on Oct. 3. Democratic Congressmen Jim Langevin and Patrick Kennedy voted "yes" on both versions. Democratic senators Jack Reed and Sheldon Whitehouse both voted "yes" on the Senate bill.
"The economic crisis we are faced with requires action," Kennedy said, via an e-mail to The Herald from press secretary Kerrie Bennett.
Though he voted yes on both versions of the bill, Kennedy wrote that the original plan rejected by the House "did not include sufficient protections for taxpayers." He praised the Democratic leadership for their "tremendous job ... (in) extracting enormous concessions from the Administration" during their negotiations on the legislation.
"This plan is a decisive step towards correcting the damage inflicted upon our nation's financial markets through the lack of regulation and fiscal oversight by the current Administration," Kennedy wrote. "This crisis needs to be addressed before its consequences become irreversible."
At a press conference yesterday, Kennedy acknowledged that many Rhode Islanders are probably suffering. Rhode Island's unemployment rate is 8.5 percent, about 2 percent higher than the national average. The state "cannot afford to be in a further credit crunch," Kennedy said.
Kennedy said he guessed that Rhode Island has more colleges and universities than any other state per capita and that he's concerned about the condition of student loans. Recent rate hikes were "a tell-tale sign" of the impact of the financial crisis, he said.
In the e-mail, the senator wrote that if the financial rescue package had failed to pass, "the economic situation for Rhode Island families and small business (would) become much worse." If not for the bailout package, Rhode Island families could have expected to see lowered credit card limits and higher interest rates, higher auto insurance rates and greater difficulty in taking out a mortgage or student loan, Kennedy wrote.
David Weil, professor of economics, said the causes of the current economic crisis can be broken into two main parts. The first is the burst of the housing bubble. Housing prices increased to "unsustainable levels," he said, which led to an extension of credit to people who normally couldn't have gotten loans. Now, home prices have fallen 20 percent, which is hurting the people and the economy. Secondly, mortgages that can't be paid back are held by major financial institutions which keep the economy going, he said.
It is these loan-holding institutions that the bailout plan was designed to aid, Weil said. The latter problem is more severe, because the economy cannot function without healthy credit markets.
"Saving the financial system is a bailout for everyone," Weil said. Even if it fixes the credit market's problems, "there's still a fair bit of economic pain" for individuals who are suffering under the strains of the bad economy, he said.
While he said there's a small possibility the country could avoid a recession, "it would be pretty good if we got out of this mess with only a recession."
Despite the perceived necessity of the bailout bill, Kennedy said at the press conference that the plan was seen as "repugnant to so many here in Rhode Island." In the e-mail, Kennedy wrote that his vote required a lot of thought but, "I know that if we fail to act, if we fail to ease a potentially devastating credit crunch, our constituents will ultimately be the ones to pay the price."
