Trust the market
Posted by Nathaniel.
The house voted down the bill that would bale out the investment banks today resulting in a record drop for the Dow. It’s actually pretty amazing that something like 5% of the money in the country just disappeared.
Despite the fact that my retirement account is now significantly smaller, I have to somewhat agree with Congress that a $700 billion baleout isn’t the way to go. There should have been more regulation during the real estate buildup of the late 1990s and 2000s to ensure that people weren’t taking on loans that they wouldn’t be able to afford and limit the degree to which lenders could leverage themselves. (Seriously, 30- and 40-to-one ratios in lending? Who thought that was a good idea?)
It seems to me that a large part of the baleout was designed just to save face and cover up the stupid assumption made by the banks that housing prices will always rise. (Show me something where there actually is infinite demand.) If you try to run a business based on ideas like that, you pretty much deserve to fail.
That said, this is going to result in a lot of companies going out of business, a lot of people losing jobs, and general unhappiness for a few years. Hopefully though, it’ll result in something positive like a more transparent and rational banking system. In the meantime, no one is going to lose the money they have in the bank. (Money in the market is another matter.)
It’s going to be very interesting to see how everything pans out.