Despite the hue and cry among the officialdom in favor of the bailout bill, the reading we have gotten from professional investors, some of them with very high level connections, and economists among our readership and personal network is strongly negative. Nevertheless, by making the bill a de facto ultimatum (”do this or we do nothing”) when there were other options for addressing the credit crisis, the Treasury assured a strongly negative market reaction when the bill looked to be in jeopardy (and in fact the Fed has pulled out the stops, but the popular media pay little heed). The specter of the stock market plunging has created panic, and the electorate is responding accordingly.
Sadly, the odds of getting a better bill were not high independent of the pushback. The House Republicans in most cases were opposed for ideological reasons, that the bill was too “socialistic” for their taste. The real issue is that the bill does little to nothing to address the acute aspects of the crisis, namely the seize up in the money, particularly the commercial paper, markers. There will be a brief psychological boost, then back to status quo ante.
From Bloomberg:
President George W. Bush and Senate leaders vowed today to revive a $700 billion financial rescue plan amid evidence voters and lawmakers regretted yesterday’s U.S. House vote to kill the bailout.Senate Republican leader Mitch McConnell of Kentucky predicted lawmakers would wrap up work on the plan by the end of this week. A plunge in U.S. markets, partially erased today, makes it clear Congress must act, he said….
Voters flooded Capitol Hill offices today, decrying the defeat of the rescue package, a House Republican leadership aide said. Prior to yesterday’s tally, lawmakers said sentiment was running about 100-1 against the plan.
Anonymous 
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The short sale ban also ends on the day congress is supposed to be doing something. What ever happens the market, if the ban goes into effect, is going to have huge volatility. Paulson can just let the ban expire, and try and influence them to do what he wants. There are traders out there, and computers, that sell when the volatility spikes Remember, they can buy shares before the ban expires, and short them the day it does expire. Could be seeing the beginning of that too.
Bottom line, this is what you get when you change the rules in the middle of the game, people gaming the changes. Very good for confidence.
Where is Cox, did paulson eat him?