What next?

Sorry I've been swamped at work and I've got to go for dinner, but I wanted to get at least a quick response to this comment:

So now what? The administration and Congressional leadership keep threatening that a bailout (take your pick as to which one) is the only option. But so far, two have failed.

What is the *worst* that could happen if no bailout is orchestrated?

September 30, 2008 8:16 AM

As for now what, I think it's safe to say that some kind of plan will get done in the next few days. There are a lot of plans being discussed now - and that's a very good thing, but hopefully the final version will look very different from what we've seen. This one seems to make a lot of sense to me, mostly because I don't think that the Paulson Plan is really targeting the problem. Of course, politics may trump economics and we could see no deal - that just doesn't seem likely based on some accounts of public reaction to the no vote yesterday. (Which is odd since there was overwhelming public opposition to the bailout over the weekend.)

The problem, as they've been telling us for the last 10 days is that we're in a crisis and commercial credit markets are dysfunctional. This will supposedly impact Main Street in a bad way, leading to a very hard recession. There are lot's of options here, but targeting the short term credit markets seems to make the most sense.

As to the worst that can happen, there is too much uncertainty to really know. I firmly believe that this whole thing has been overblown for political reasons. Yes, there is a problem. The solution should not entail simply "trusting" Hank Paulson.

If nothing happens at all, then there will be some chaos in the financial markets. This will spillover to some extent into everyone else's lives. But if that were to happen (if a really bad recession ensues), there will be incredible popular support for government to step up in the form of tax cuts, increased spending, etc. In my mind this is preferable; I'll try to address this in a later post.

UPDATE: This post was supposed to go up about 8 hours ago...