04 October 2008

On the bailout bill's passage

That was a sad spectacle. I cheered when the back-bencher's rebellion wrecked the "leadership's bipartisan compromise."

Likewise, I mourn now that the "leadership" has put down the rebellion.

"Ah," you say, "but they had to be practical. Wall Street tanked after the bill failed Monday."

So, what did Wall Street do after the bill's passage Friday? See the above graph.

The Dow Jones was up for the day by about 1% of total value when voting began. It fell immediately (this is the 1:12 peak and drop on that chart) when the early numbers on the C-Span screens showed that the bill was heading to passage.

As the process dragged on, the index recovered, returning almost to the earlier intra-day high, by about 1:25 in the afternoon.

Then the finality of it, realization the mess HAD passed, and the index dropped dramatically. And kept dropping, so that it was in negative territory for the day by 2:30.

And well I'm on the subject, can we please retire the use of "Main Street" as a metonym for "the broader economy"? I'm tired of it, I suspect you dear reader are tired of it, and even the people who keep using it are likely tired of it.

As far as the broader economy is concerned, the bailout likely substitutes the scary prospect of a brief sharp panic (followed, as such a panic was in the period 2001-03, by a prompt recovery) for the scarier prospect of a very long period in the doldrums. A lost decade or more.

After all, what has the bill done? Will this money recapitalize and de-leverage the banks? No. As I read it, it will simply allow them to jigger their numbers and pretend that they've been recapitalized.

But pretending that they're making loans will be more difficult. Pretending that the loans are going to productive borrowers will be trickier still. The experience of Japan throughout the 1990s seems dispositive here.

Get ready for a brief and malaise-plagued Obama presidency, followed by the rise of a new hyper-conservative reaction. Get ready, in short, for President Huckabee after 2012.

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Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.