With a vote of 263 to 171, the House of Representatives, on Oct. 3, 2008, approved legislation aimed to address the credit and liquidity crisis affecting the nation's financial system. The Senate approved the legislation, the "Emergency Economic Stabilization Act of 2008" or "EESA," on Wednesday, Oct. 1, 2008, by a vote of 75 to 24.

President Bush signed the legislation into law within two hours of its final passage, and declared in a Rose Garden speech that the legislation is "essential to helping America's economy weather
this financial crisis."

The legislation provides the Treasury Department up to $700 billion to purchase, manage and sell assets held by financial institutions that are considered to be "troubled" or "toxic."

BACKGROUND

The current credit crisis, which led to the enactment of the EESA, has its deepest roots in the subprime mortgage crisis, known in the popular media as the "mortgage meltdown," that came into prominence in 2007. While many experts originally believed that the mortgage crisis would be contained within the mortgage industry, few at that time predicted its vast reach into the financial markets.

Experts point to a number of causes for the mortgage meltdown:

the bursting of the U.S. housing bubble that had peaked in 2005;
historically low interest rates that led to the inflation of the housing bubble;
a housing market correction that stemmed from the over valuation of homes during the bubble period; and
the rise of subprime lending.

With the collapse of the housing bubble came increasingly higher default rates on subprime, adjustable rate and other mortgage loans made to higher-risk borrowers with lower income or lesser credit history than "prime" borrowers. The number of subprime loans rose as rising real estate values led to lenders taking more risks. Many experts believe that Wall Street encouraged this type of behavior by bundling the loans into securities that were sold to pension funds and other institutional investors seeking higher returns.