Bailout Rejected, Dow Tumbles and Politicians Suck

by Sachin Balagopalan on September 29, 2008 · Comments

I took the day off today because my son was sick so I was at home watching this debacle break live on CNN and other networks. “Unbelievable” is the only word that comes to mind to describe the events that took place today. As we now know the House of Representatives voted 228-205 to reject a $700 billion rescue of this mess which right now is not just a Wall Street problem but a national crisis that could impact just about everyone. One third of the Republicans - about 65 members - voted in favor of the plan in contrast to 140 Democrats - about two thirds.

A couple of observations… Notwithstanding the fact that this is all about the tax payers and not the politicians it looks like the Republicans lost a huge opportunity here to “advance their cause” politically and specifically with regards to the upcoming presidential elections. If this bill was not rejected John McCain IMO would have come out smelling like a rose instead of egg on his face. He suspended his campaign last Thursday to go back to Washington to supposedly “help” and that could mean only one thing - gather the support of as many Republicans as possible to help pass the bill through. Had the bill passed he could have claimed credit and more importantly he would have looked like a leader who took charge of the situation and facilitated action. This would have been a huge boost for his campaign IMO.

The Dow tumbling down nearly 778 points is not that surprising and quite frankly is not that significant - unless you’re a huge institutional investor - considering the fact that it represents only 30 of the largest and most widely held public companies in the US. The bigger concern is the drop in the other indexes like the Wilshire 5000 losing nearly 1.2 Trillion in market value. Most of us average Americans have our 401K’s and IRA’s tied to these indexes. The S&P 500 lost nearly 8.8% of its value in ONE day - typically a 8.8% ROI on your 401k or IRA for the whole year is considered good. And this is what baffles me the most. These politicians are playing partisan politics at the expense of the very constituents that put them in office. I agree this is a pretty complicated thing to comprehend - even the financial gurus and top economists have a hard time figuring it out. However it is pretty clear at this juncture that the lending system in this country is not working. Most companies especially the smaller ones take out short term loans to meet their operating expenses like payroll, utilities etc. Not being able to borrow will put these businesses in jeopardy - layoffs, shutdowns etc.

I can understand political ideology and the fact that typically you’d want the free market forces to dictate the course of action rather than any sort of government regulation. But this is different and it affects main street significantly and not just the fat cats on Wall Street. I think one of the talking heads on TV said it the best - “If someone started a fire in your house you would still try to extinguish it even though you were not the one who started it”. Wall Street and the regulators may be responsible for this mess but the fire has spread to our house and we need to put it out.

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