Looks like the Dow Jones wanted the bailout plan to pass. Today, Congress dumped the bailout plan by 23 votes (one man, Governor Weller of Illinois, didn’t vote at all). Democrats voted to pass the bill. Republicans did not, spurring a storm of political accusations (find the text of Nancy Pelosi’s speech here) and speculation.
The Dow Jones, meanwhile, dropped 777 points, the worst one-day drop in 20 years. What’s the correlation? Did the Dow prefer the first version of the bailout plan? A reflection of people losing even more faith in a system they barely trust? A few wealthy proponents of Bailout Plan #1 selling vast amounts of shares?
It’s probably more like confusion leading to panic, according to this New York Times article. And when people panic, Main Street implodes.
While investors didn’t believe that the plan was a panacea, and understood that it would take months for its effects to be felt, most market watchers believed it was a start toward setting the economy right after a credit crisis that began more than a year ago and that has spread overseas.
Besides that, the House promised it would be passed today. That’s why they worked on it all weekend. Maybe Nancy Pelosi ruined it, maybe she didn’t. The fact is that things are getting worse because the bill wasn’t passed.
I think accuracy and Main Street protection are more important than a rushed bailout. However, markets appear to want any kind of action, despite its quality, before more banks fail (which they probably would if the bailout was approved–it takes time to draft it completely). The market crash today has proven that timing is crucial to stop fallout from growing even more wildly.