A prediction for the bailout

by Jay McDonough

The primary reason given for the failure of the bailout to get through the House today is the public reaction to the bill: they don't want their money to bail out Wall Street for their poor decisions and House members are nervous about heading home for re-election after having voted for the bailout.  OK, fair enough. 

But here's what I think is going to happen.  The public has now seen the Dow drop nearly 800 points in a day.  The largest drop in the market's history. Foreign markets will, undoubtedly tank with Tuesday's trading.  An increased anxiety over the ramifications of this economy without a fix will slowly penetrate folks consciousness - what about my job?  what about my 401K?  what if my employer lays me off because they're unable to secure credit?

No one is happy about the circumstances we find ourselves, and no one can be too thrilled about having to bail out Wall Street for some grossly reckless practices.  But faced with the prospect that the U.S. economy may grind to a halt, and having a pretty good idea of what that would mean, I bet the public finds itself pushing some solution, almost any solution before too long.

Robert Reich makes a prediction:

A scaled-down bill will be enacted by the end of the week. It will provide the Treasury with a first installment of $150 billion. Treasury can use it to back Wall Street’s bad debts with lend no-interest loans of up to two years, until the housing market rebounds. Or to invest in Wall Street houses directly, in exchange for stocks and stock warrants. There will be strict oversight. Congressional leaders will promise further installments, but with conditions calling for limits on salaries and relief to distressed homeowners.

Sounds good to me.

Comments

[Mark]

God knows I'm morally opposed to just about any bailout. But as I suggested in response to Cernig downblog, I recognize that a bailout that did only what was necessary to prevent fallout beyond Wall Street without creating concerns about the rule of law is a good and maybe even necessary thing. A compromise like that floated by Reich (who I respect greatly even if I am nowhere near him ideologically) would be a vast improvement, and would be at least palatable. Still deeply flawed, to be sure, but not potentially disastrous.

[john]

ha ha ha - the markets love it that it failed.

[Jay McDonough]

The market isn't really a good measure of the problem. Declining credit will be the problem and there IS evidence credit is beginning to tighten.