The editorial page of The Wall Street Journal has a few comments about yesterday's collapse of the fiercely-debated bailout package.
America has survived a feckless political class in the past, and it will again after this week. But Monday's crash and burn of the Paulson plan on Capitol Hill reveals a Washington elite that has earned every bit of the disdain that Americans have for it. This crowd can't even make sausage. [...]Given this historic abdication, we're surprised financial markets didn't melt down more than they did yesterday. Equities nonetheless took the worst bath in percentage terms since the aftermath of 9/11, with the Nasdaq falling more than 9%. But that was a sideshow compared to the credit markets, which staged another flight from all risk. The three-month Treasury yield had sunk to 0.132% the last we checked, which means investors will accept essentially no return as long as they can avoid further financial losses.
Safe in their think-tanks, some of our friends have claimed that talk of a financial crash is merely a political invention. Perhaps we'll now test their theory. A financial panic isn't an academic seminar, and a flight from all risk isn't something any free-marketeer should want. A recession now seems certain, as falling commodity prices are telling us, but the point is to prevent systemic financial collapse. Maybe the Members who voted "no" figure at least they'd still have jobs.
This process has been a debacle from the start. Unfortunately, the price of systemic failure is going to be enormous.
UPDATE: 12:30 - The market still clings to hope that something helpful will be passed.
Traders on the floor of the New York Stock Exchange, still stunned from Monday's 778-point plunge in the Dow Jones industrial average, warned that the government needs to approve a plan that will sweep away the fears that hobbled the credit markets. While U.S. political leaders have vowed to revisit the issue, the House isn't slated to meet again until Thursday.Posted by Alan at September 30, 2008 06:24 AM"If it doesn't pass, then look out below," said Jason Weisberg, an NYSE trader for Seaport Securities. "It could get ugly."
Though the blue-chip index rose more than 250 points at midday, the main worry for traders is that a lack of a plan will make it nearly impossible for some companies to fund basic operations like making payroll. Participants in the credit market buy and sell debt that companies use to finance operations.