Post-Bailout : Why the Stock Market Still Plunged

Unemployment, tempera on paper by Ben Shahn, 1938. © Private Collection/Christie’s Images / The Bridgeman Art Library.

It’s the economy, stupid….
By Steve Russell / The Rag Blog / October 4, 2008

Why, I was asked off line, did the market dive after the bailout passed?

First, the bailout was not about the Dow Jones/S&P/NASDAQ but about the LIBOR (London Interbank Offered Rate).

However, the straight answer is that the smart money had already priced in the bailout as a lead pipe cinch after the Senate moved things a few notches to the right to capture House Repugs. I would have thought moving to the right would cost votes on the left but that turned out not to be the case as every chamber of commerce in the country was in a blind sweat panic over new collateral requirements and drying up lines of credit. You don’t think a car dealer owns those new cars on his lot, do you?

Anyway, after the big dive the market came back to an equilibrium slightly lower than it was before the far left and the far right joined hands and jumped off the cliff.

The Friday dive was about more dire economic news, principally the unemployment numbers. Those numbers and the LIBOR are directly related, so here’s hoping we can at least slow down the bleeding when the “toxic assets” become sort of liquid again.

The Rag Blog

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4 Responses to Post-Bailout : Why the Stock Market Still Plunged

  1. Anonymous says:

    Disagree – The Friday dive was too close in time to the approval announcement to have been caused by other news. If other news caused it, the dive would have taken place earlier – at the time the other news was released. People realized that adding $100B+ of irresponsible budget busting to a $700B turd only made it smell worse. The fact that the dollar is on its way to having the value only as rat cage litter is starting to sink into the market. The drop was the beginning of pricing future economic damage of irresponsible spending – the start of anticipation of hyperinflation. I project Monday will be much worse. Of course whatever happens, the bailout supporters will crow about how they did the right thing. If the marked drops, they will say it wasn’t done soon enough. If it rises, they will say it is working. If it stays the same, they will say they stabilized things.

  2. Steve Russell says:

    You are right that it’s hard to know exactly what the market thinks of the bailout, but if you are going to go on timing, the release of the unemployment numbers works as well.

    For the record, if I had been in Congress I would have voted for the bailout package that failed but against the one that passed–one of those left votes I thought might drop off.

    Another political observation. McCain blew a great chance by not voting against the bailout and making it a big issue on faux populist grounds. That position has a lot of traction, and he knew Obama would vote for it because all the criticisms Obama leveled were met. It may have been McCain’s last chance to get out in front of the economic issue and it’s no more bogus than the rest of his economic ideas.

  3. Mariann says:

    The profiteers are just trying to drive down the stocks to rock bottom while the details of the “bail-out” are being “worked out”; they pick up fundamentally sound stock for rock bottom prices and will skim the cream later on.

  4. Who are these “profiteers?” I’m certainly buying stocks on the cheap, but the filthy rich are in hedge funds and the big hedge funds have all been in mandatory liquidation mode for some time, meaning that rich folks are bailing out of the market. The Bush appointees have allowed hedge funds to hammer individual stocks to drive them down after short selling, but that’s not the whole market. The major market wizards–Buffett, Huebner, Soros, etc.–have their entire portfolios posted on line for all to see. So I gotta ask who these profiteers are you are talking about? The stock markets are not conspiracies, hard as Bush has tried to make them so.

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