When the House rejected the first Wall Street bailout bill on Monday, the markets responded by shaving 777 points off the Dow, and posting even larger percentage gains off the broader indices, prompting more than few congressmen (and from what I hear, a lot of scared constituents) to reconsider their vote out of fear of a crash of 1929 proportions.
When the wise men and women in the Senate acted on this renewed sense of urgency, passing a goody-crammed bill by a commanding 74-24 margin, the Dow responded by shedding another 350 points. And today, after dozens of representatives flipped their vote to assure passage in the House, the Dow immediately dropped another 300 points, eventually ending the day down 157 points at 10,325.
That’s some thank you.
Despite a mid-week recovery, the Dow closed down 818 points for the week, a 7.3% decline that leaves total returns during the Bush era in negative territory, the worst market performance during any administration since that of Herbert Hoover. What should be obvious by now is that a mere $700 billion of taxpayer money can do little to assuage the hunger of a market that can (and has) shed twice that from its total value in less than a day of trading.
The bailout package may indeed prevent some large financial institutions from failing, or at the very least, from failing fast and hard, and in so doing no doubt might stabilize the financial markets a bit. But the problem is that the Dow and the other indices we tend to obsess on are perhaps less connected to our real economy than at any time in their history. These are feel good numbers—or feel bad numbers, depending on the day—that have little direct impact on the majority of Americans, most of whom live paycheck to paycheck. So the implied promise that somehow this bailout would pump up the markets was not just illusory, it was mostly meaningless to the majority of taxpayers who are being asked to foot the bill.
The truth is, our economy sucks, and there are no quick fixes. This bailout may save the jobs of executives at a handful of financial giants, but it will not prevent the recession in which most economists believe we are already mired, nor end it more quickly; and by emptying our coffers of yet another $700 billion we don’t have, the bailout has left the next adminstration with fewer tools with which to address our ever worsening economic crisis. We now have $700 billion less to spend on fiscal stimulus, or to serve the ever growing social needs of our nation’s unemployed, or to address the multi-trillion dollar infrastructure deficit (roads, bridges, water, sewers, schools etc.) that threatens to undermine our future health, welfare and prosperity.
Monday’s 777 point drop in the Dow made for great headlines, and in that vice I was as guilty as anybody else, but this bailout was never about the Dow, or rather, it was always about the Dow, but never should have been. Sure, this bailout was good for Wall Street, or at least, some people on Wall Street… but if you were expecting the markets to rebound and the economy to recover with a simple wave of President Bush’s pen, well, I think you just got played.