Update: I seriously feel guilty for writing politics in a physics blog. I personally sometimes get annoyed at reading politics on other non-political blogs, and I imagine you do too. That’s why I happily encourage you not to read anything I write tagged with politics unless you like that sort of thing. The election’s only a month or so off. I promise after that the politics will be few and far between, and until then I’ll still try to keep it to only an occasional thing.
The bailout is dead. As congressional acts often do, it may come back to life at a later date. But for the moment, it’s dead and I’m quite pleased.
It’s rare that the ideological left and right make common cause with each other, but here this has to at least some extent happened in both the commentariat and legislature.
Left: No bailout for greedy fatcats!
Right: No bailout with responsible taxpayer money!
And the not-very-ideological middle of both sides have generally shared opinions as well.
Both: The bailout is not ideal but it’s necessary.
Chalk me up with the extremists. The bailout failed and stocks have tumbled, but in terms of percentage it’s not among the big drops of history. We’re surviving fine so far, and liquidity remains quite decent from smaller banks which already provide a very large percentage of total lending, and which didn’t invest riskily with these house-of-cards subprime packages. Could we turn it into a depression? I doubt it; the world is not the same as it was in the 20s, and the US is not a closed system. Assuming congress doesn’t go protectionist on us, global trade and liquidity will be a great asset to the US. In any case I’d put more of my devaluing dollars on a bet that panicky government intervention is more likely to spark serious general economic problems than a natural Darwinian pruning of the near-criminally mismanaged mortgage finance companies. So long as congress and the fed keep an eye on potential developing liquidity problems I think we’ll be fine. And I’m not a disinterested observer: colleges are among the institutions most dependent on credit availability to their students, so my own job would be a canary in the coal mine. But I’m pretty sure we’ll be ok for the reasons above.
In forest management you sometimes have to let small natural fires burn in order to clear underbrush, keep the forest healthy, and prevent fuel from building up for a serious fire later. Let’s let this one burn. The financial forest will be better for it.