That segment of House Republicans, many from the party's conservative wing, say they oppose assisting Wall Street firms, which they believe made wrong business choices that led to the crisis. As an alternative, House Republicans offered a plan under which companies would buy insurance from the government, and that includes proposed tax cuts and a relaxation of government regulations.
Currency trader Andrew Resnick said the House Republicans' plan was deficient from a number of standpoints.
"Is this the way a responsible coalition behaves? You say nothing all day, then in the dead of night present a questionable plan via back-channels? Frankly, it's reckless and bizarre," Resnick said. "The House Republicans are playing with fire. Here we are trying to prevent a financial crisis from turning into a catastrophe and one political camp wants to play partisan politics. It's the height or depth of public irresponsibility."
Resnick said credit markets, already stressed by a series of financial institution and bank failures, as well as forced margin calls, could degenerate further.
"I'll tell you right now this whole [expletive] system could come crashing down if banks continue to hoard funds and a series of cascading sales starts to occur," Resnick said. "The House Republican plan also isn't credible. Few expect it to provide the liquidity necessary to keep the financial system functioning, and their tax cut proposal is just nuts. They want to increase the federal budget deficit more? With the dollar weak and after eight years of deficits?" Resnick added that he was presently flat, or had no open currency trading positions.
Economist David H. Wang told BloggingStocks Friday if the House Republicans' stance is a tactic to enable Republican Party presidential candidate U.S. Sen. John McCain, R-Arizona, to participate in the talks and/or any potential bailout agreement, they have their priorities confused.
"This is a troubling development. If we don't get an assistance package to free-up the credit markets soon, there is a high likelihood we will experience the worst financial panic since 1929. The damage would produce a long and painful recession, or worse. It is my hope that this concern would take precedence over presidential campaign concerns," Wang said. "Hopefully, all parties in Washington will see this and act responsibly."
The dollar moved sharply lower against several key currencies early Friday but rose against the euro following word that House Republicans splintered from a broad Washington coalition and said they would not support the Bush Administration's $700 billion bailout plan.
The dollar declined one-half cent versus the British pound to $1.8416 and fell 1.25 yen to 105.35 versus Japan's yen after the sudden disagreement. The dollar has managed to hold its own against the euro so far, rising about one-quarter cent to $1.4632.
Forex / Economic Analysis: The view from here, the hope, really, is that the talk breakdown represents a speed-bump on the road to solving the financial crisis. But if House Republicans are betting that House Speaker Nancy Pelosi, D-California, will put her House Democratic coalition on the line by bringing a bill to the floor without House Republican support, they are sorely mistaken. Rep. Pelosi will not have her coalition bear the brunt of the political responsibility for the bill, so that House Republicans can tell voters before the election they opposed 'another big spending bill.' For this bill to pass, it must have bipartisan support. If it doesn't get it, and a financial catastrophe ensues, the blame can be placed squarely at the feet of House Republicans.
Further, at this juncture, it's difficult to assess Sen. McCain's role in the above, or his stance regarding the bailout package because he hasn't taken a stance on the bailout plan. But then, what was his reason for 'suspending' his presidential campaign and traveling to Washington?