Investors and consumers have anxiously awaited development in the economic stimulus plan. After the house passed an $800-plus plan last week, the Senate has debated various aspects of the bill for several days. President Obama has traveled around trying to sell the urgency of passing a bill and putting politics aside. His message reached 3 Senate Republicans who joined the Democratic majority in a 61-37 vote to pass a more than $800 billion version of a stimulus package pushed by Obama.

The final details on how exactly the money will be spent seem a bit cloudy at this point. The basic ideas for the plan include infrastructure support for transportation and roadways, educational assistance, tax cuts, and some support for states government struggling with their own budget issues. This last point, support for state governments, was a factor in the discussion in the last couple days. Some members of Congress believe the federal government needs to do its part to support states with education and other programs, while others believe it was not the fed’s role to get involved in state matters.

Only time will tell how effective the new stimulus bill becomes, but there is no question investors were not impressed. The Dow gave up 381 points and over 4.5 per cent of its value on Tuesday (February 10). Market analysts cite the lack of details in the plan for the sour response from financial markets. Investors were hoping for more specifics on where the money would go and how its use would be monitored. Lack of accountability over the tracking of funds doled out has been a big criticism of the first $700 billion bailout package.

It was not just stocks that responded to the news of the stimulus bill’s passing. Oil hovered near $40. The dollar made gains against the Euro and the Pound but fell back slightly against the Yen.

One of the biggest debates in the new tax bill centers on the possible assistance of struggling creditors. The credit sector remains one of the centerpieces in the economic drama the US has dealt with for the last year or so. Many large financial companies have already gone under or accepted bailout funds. Obama initially said creditor bailout was not an emphasis for his stimulus bill. His plan was to focus more on building up consumer and job markets.

Creating jobs has been the mantra of this administration for its first 3 weeks in power. However, there is discussion now that some amount of money is going to be used to buy failed assets from viable banks. The Administration is going to evaluate the list of struggling banks and look for banks it feels can survive and buy up the failed assets.

As the Administration and congressional leaders try to push the right buttons to spark the economy, availability of credit and creation of jobs certainly are focal points. Many leaders have argued that providing funds to lenders to make credit more available will help struggling businesses expand and create jobs. However, others argue that this logic did not work in the first bailout package passed late last year, because creditors were not using their bailout funds to offer more accessible credit. Many businesses have stepped forward to say that even with a solid business and credit reputation; they have a hard time finding banks willing to lend more money in the current market.

Market Recap

Stocks were flat Monday as investor’s awaited development in the economic stimulus bill. The Dow gave up 9 points on the day. Oil hovered near $40 per barrel. When investors did hear news of the more than $800 billion stimulus bill passing the senate, they were not impressed. The Dow gave up 381 points Tuesday with the NASDAQ and S&P down 66 and 42 points. GM cut 10,000 salaried jobs.

Neil Kokemuller
10:07 PM EST
Tuesday, February 10, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

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