Deadman's picture

    Holy *%$# ... Bailout defeated, market collapses

    OK, I was wrong. Really wrong. I was sure politicians would approve this bailout bill, no matter how publicly unpopular it was. The short-term risks of not doing something seemed too enormous - a complete freeze of the credit markets and the subsequent collapse of the economic system that relies so heavily on that free flow of credit.

    But apparently, there's one other short-term risk I didn't consider strongly enough: The fact that every last one of those 435 members of the House of Representatives are facing elections in a month and could be tossed out on their rear ends if they piss off their constituencies.

    To put it mildly, the financial markets didn't take too kindly to news of the plan's defeat. Even with a pretty widespread short-selling ban in place, the Dow Jones average fell more than 700 points, while the Nasdaq plummeted more than 9 PERCENT!!!!!

    So now what should you do? Well, here are my thoughts.

    • I obviously would never give specific investment advice here, but if you have money set aside and a long-term time horizon, putting some of that money to work doesn't sound like a bad idea. I put an order in for a small amount of an S&P index mutual fund. But that's been my strategy every year - put a little more money into the market during the bleakest time of the year. In general, you want to be buying when everyone is selling. As I've said in other posts, this situation could definitely end up being Armageddon and/or the next Great Depression (at some point, the American empire will collapse just like every other one in history), but that bleak forecast is probably not the most likely scenario. And even if it is, having a shoebox full of cash stashed under your bed won't do you that much good. Eventually, at some point, I'd begin to look at the riskiest, hardest-hit sectors as possible places to invest - Homebuilders and real estate, financial institutions, etc. - but I'd wait awhile to see how things shake out.
    • While dipping a toe in these scary investment waters, I'd also hedge my bets a bit just in case things get appreciably worse. Personally, I'd spread out my money to separate institutions if I had to make sure my bank accounts were within the $100,000 FDIC insured level. Obviously, there are stronger banks and weaker banks, but in a crisis, it's tough to be certain of the difference so there's no harm in being prudent. Also, the government last week guaranteed against losses in money market funds for one year, but to be extra-safe, I've pulled money out of those accounts and into plain-Jane savings accounts.

    It's odd: I don't agree with the free-market, deficit-hawk politicians who have opposed this bill and blocked its passage (I believe that we have no choice but to act), but on some level I actually admire them for sticking to their principles. The lessons of The Great Depression and subsequent crises suggest otherwise, but they could be right that we need to suffer the consequences of our actions and take the full extent of our medicine if we are truly going to cleanse the system. A bailout plan poorly executed will only make it worse down the road.

    However, I still think the risk of inaction is too high, and that these politicians will look at the market and economic fallout of their No vote over the next couple of days and then pass a bailout plan that is very similar to the one they rejected.

    After all, this decision wasn't just about principles, but about politics. And the politics could change very quickly if the electorate realizes that The Powers That Be weren't bullshitting when they warned that Wall Street blood would pour onto Main Street.


    I have no admiration for principled idealism that is stubbornly blind to historical evidence and the advice of experts. The same motivations have driven the same people to dismiss widespread evidence of and scientific consensus on global warming because of their idealogical opposition to regulation. It's nothing more than dogmatic ignorance.

    I like the global warming analogy, to a point. The preponderance of evidence suggests goverment action would be far better than inaction in handling this economic crisis, but it doesn't begin to approach the levels supporting the need to take significant action on the issue of global warming.

    i believe there can be legitimate debate, with valid points on both sides, about the need for the government to get involved here and to what extent (not to mention the rapidity with which such action must be taken), whereas global warming issue now should be practically a settled matter with the only questions surrounding possible solutions. Of course, the fact that it isn't does suggest that dogmatic ignorance is not absent within the halls of Congress, but I'm not so sure it applies here.


    Yes, something needs to happen... system confidence needs to be restored.  Some form of legislation needs to be passed.

    But I believe that the American people need to have a few scapegoats if they are going to pony-up $700B.  Pur some teeth in the bill.  Wall Street types and SEC types need heavy fines and / or jail time.  Time to call in the FBI and IRS... and any other investigative agency to go after the crooks.  Seize their passports.

    I also believe that McCain is right about Cox.... he should be fired.  His own inspector general said there was little enforcement.  One of the few things I agree with McCain about. 

    BTW, I just heard that the WaMu CEO, a new hire, will walk away with $20M for 17 days work... nice golden parachute.  Thank you very, very much.  Let's see how much publicity this fact gets.  This should really help sell the 40% of house dems who voted against the bill.


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