EARLIER: Yes, the credit markets are tight. Yes, the DOW is down 20% or so from its highs. Yes, lots of folks have gotten nuked. Yes, things could (and probably will) get a whole lot worse before they get better.
But at this point in the crisis, it's worth noting what we've survived thus far. In short? A hell of a lot more than anyone ever imagined we could:
- Biggest bank failure in history
- Failure of two of four biggest Wall Street firms
- Failure of lots of small banks
- Failure of massive Fannie Mae and Freddie
- Failure of world's largest insurance company
- Global economic weakness
- Collapse of housing market
- $100+ oil
- 5% inflation
All that, and the unemployment rate is still only 6% (vs. 10% in some recessions and 25% in the Great Depression), the market is down less than in a usual dime-a-dozen bear market, and the credit markets are still operating, albeit haltingly. On the day after the biggest bank failure in history, while Congress is deadlocked on a bailout, JP Morgan just raised $10 billion and the DOW is flat.
Tough? Yes. In need of more government intervention? Probably. Armageddon this afternoon? Not yet.
Bottom line? We've got time to get the bailout right. We've got time time think through a few different options, ultimately settling on the one that is best--for taxpayers and for the economy (and the heck with the banks). Specifically, we've got time to wait over the weekend.
UPDATE: Well, for what it's worth, we just had lunch with a bank and brokerage analyst who thinks we're nuts. The TED Spread, he explained, is 300+ basis points, and unless that changes, the whole system will shut down in a matter of days (the TED Spread measures the difference between 3-Month Treasuries and 3-Month LIBOR and represents how much many banks have to pay to borrow short-term money from each other. Banks either have to borrow or sell assets, the analyst said, and banks aren't going to borrow much at a 300BP TED when that's often bigger than their entire net interest margin.)
If a bailout deal isn't reached this weekend, the analyst hypothesizes, the market might open down thousands of points on Monday. We doubt that, given that the market knows a bailout it coming--and some deal will come. But in the absence of a bailout, the analyst believes that the current credit crisis will begin to shut down the economy in "days."
So, fine, Congress, take the weekend, but get cracking.
See Also: Two Better Bailouts
