Tuesday, September 30, 2008

What Now?

The bailout failed. Not sure how I feel about that-- I find myself strangely devoid of opinion.

If the only fallout was the DOW losing a thousand points, I'd give the proposed deal a Roman thumbs-down vote (death to the greedy people who screwed us!!). But the thought of my large multi-national employer not making payroll because banks aren't fronting any dough, well... that's an unthinkable shot of reality.

The politics of this are mind boggling. Dems could not be the only ones supporting the bill... it required bi-partisanship to pass what is essentially a Republican action (from Bush). The Republican and Democratic whips thought they could bring enough votes to the floor to pass it with a Democratic majority but -- get this -- Newt Gingrich was actively whipping against the vote in the name of ideology. I imagine John Boehner must have been tearing his hair out to hear Newtie accuse them all of being socialists. And then Nancy Pelosi gave a stupidly partisan speech (albeit the most mildly partisan speech I have ever heard in my LIFE), which the Republicans latched onto as an excuse for their failed vote delivery (like this is kindergarten and they got their widdle feelings hurted when she said the situation was a Bush failure). I never thought Obama and McCain as Senators were going to be able to do much to help with this House vote but McCain was out there yesterday morning taking credit for the vote after saying away from Capital Hill all weekend (no wonder he didn't realize the bill was on the ledge). It was a stupid idea that McCain was going to affect the Republican vote anyway... for all of his claims of leadership they don't like him and they never, ever will. Besides, Republican voters were registering very strongly (and vocally) against the bill. Meanwhile, Obama remained forcefully non-committal. The whole situation was like a giant incendiary ball destined to go down in flames.

So bottom line: Democrats brought more than half the votes, Republicans couldn't make their numbers (not even close). This iteration of the bill failed, maybe as it should have. Now what?

I have no idea how big of an issue this really is. Not only does Congress seem to not be reading this as a doomsday scenario worthy of suspending politics for, the DOW futures are UP this morning as I write by 200 points. What the hell???

Most economists, while agreeing that gov intervention is needed, say the bailout plan was inadequate to ward off the looming disaster. It's almost as if this bailout was doomed to fail from the get go, whether it died on the House floor or just ultimately failed to stop our economic meltdown.

My favorite economist, Nouriel Roubini, is looking pretty gloomy. Yesterday he said this:
It is obvious that the current financial crisis is becoming more severe in spite of the Treasury rescue plan (or maybe because of it as this plan it totally flawed). The severe strains in financial markets (money markets, credit markets, stock markets, CDS and derivative markets) are becoming more severe rather than less severe in spite of the nuclear option (after the Fannie and Freddie $200 billion bazooka bailout failed to restore confidence) of a $700 billion package: interbank spreads are widening (TED spread, swap spreads, Libo-OIS spread) and are at level never seen before; credit spreads (such as junk bond yield spreads relative to Treasuries are widening to new peaks; short-term Treasury yields are going back to near zero levels as there is flight to safety; CDS spread for financial institutions are rising to extreme levels (Morgan Stanley ones at 1200 last week) as the ban on shorting of financial stock has moved the pressures on financial firms to the CDS market; and stock markets around the world have reacted very negatively to this rescue package (US market are down about 3% this morning at their opening).

Let me explain now in more detail why we are now back to the risk of a total systemic financial meltdown…

Read his whole post here. Scary shit.

I have no idea where we go from here. Hopefully Bush will actually call on a few economists to help them get the bill right and then call on Congress to behave like big boys and girls and do what needs to be done. And if bad things do happen, maybe the American people will bother to look up from their favorite reality TV shows long enough to educate themselves about what's going to happen to us if no action is taken.

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