Oh, shit.
Well, the bailout failed. Not that I was really for it, and all estimates indicated that they needed a lot more than $700 billion dollars, but I’m still not sure how to react to this. I know the Fed just released another $630 billion into the Term Auction Facility (emergency lending) and currency swaps markets today, but it seems that the Fed’s balance sheet is just about tapped anyway. So, as it stands, the Dow is down 7%, and the S&P is down 12%. It’s not even the end of trading.
It’s entirely possible that they’ll attempt to craft a new bill which has more… populist leanings, in the hopes of getting more Democratic support (since they almost certainly won’t get the Republicans). It might pass. It might be a better bill. It might not be. It seems that, in any case, they’re going to sacrifice something that might have worked for ideology and political expediency. The Asians were already leery of lending us more money. Germany and France flat-out said no. Britain’s in the middle of their own crisis. What the fuck happens now?
The US dollar disappears as a reserve currency? Commodities markets start to be denominated in something other than US dollars? Our economy crashes and burns even more? It should be obvious (and should have been obvious) to people that we cannot march inexorably upwards. People in the US (myself included) don’t (or can’t) save any substantial amounts of money. However, at some point, things have to go down when the bubble bursts. It doesn’t look like we’re going to end up creating a new one like we did when the .com bubble burst (hello, housing), thus the incredible amounts of leveraged debt US companies are holding has to crash. We’ve already had the largest bank failure in US history in the last week, Wachovia’s gone (Citigroup, Chase, and Bank of America are now huge entities), most of the investment banks are gone, and there’s still a shitload of debt hanging around.
The Republican plan of cutting the capital gains tax is idiotic. By definition, a company taking losses doesn’t have any gains, but they’re going to fiddle while Rome burns, so to speak. Nobody seems to know what’s going to happen. There may be another bill. There may not be. Bankers are finally offing themselves. It remains to be seen how the markets do for the rest of the day, I guess, but the TED and Libor are way fucking higher than the Fed’s nominal rates on T-bills. Welcome to a new depression?
It would be nice to see government being proactive rather than reactionary. We’re going down, and it looks like a lot of the world might follow for a while (Hong Kong, Russia, Japan, and London stock exchanges are down precipitously over the last week also). Seriously. Propose legislation for a new Civilian Conservation Corps (e.g. rework the Job Corps). Bring back the regulation you abolished over the last 20 years. Take over FHA backed mortgages, and do… something with them (forced refinancing to current value, with the government pocketing any equity they may acquire until such time as they’re paid off or something). Raise the prime rate to stave off inflation (it’s clear that cutting it isn’t going to let us buy our way out of a recession through liquidity at this point). Actually try to solve the problems which are inevitably going to come up before you have to.
Failing that, torches and pitchforks, maybe.