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    Monday, September 29, 2008

    The cost of indecision

    Cost of the Proposed Bailout to the taxpayer= - $ 700 Billion

    Bailout rejection by Congressional Republicans=- 777 points on the Dow= - $ 1.2 Trillion

    Cost of inaction today= - $ 700 Billion + (- $ 1.2 Trillion)
    = - $ 500 Billion

    I did the Math. You say God bless America.

    House rejects bailout package, 228- 205; Stocks plunge [New York Times]
    Talent Flight Feared by City Firms [New York Sun]
    Why did the rescue bill fail [NYMag- Daily Intel]
    Lehmann's demise triggered Cash Crunch Around Globe [WSJ Online]
    Why Main Street needs to support the bailout [
    Accrued Interest]


    Kanan Jaswal said...

    Well done Shreshtha! What you said yesterday about the cost of inaction by the US Congress George Bush said today in his address to the nation. But should you two place on the same footing the cost really charged to the exchequer and the notional loss sufferred on the stock exchange?

    Shrek said...
    This comment has been removed by the author.
    Shrek said...
    This comment has been removed by the author.
    Shrek said...

    Thanks for the comment, Kanan.

    I agree that both of them cannot be placed on the same footing.

    But a significant proportion of Americans have exposure to Wall Street in some way, and that cannot be discounted.

    And either how the $ 700 Billion allocated to the bailout gets added the the national debt ceiling, which would come to about $ 11. 3 trillion. The exchequer does not pay for this really, but yes, it hurts America's capacity to raise money for, say, other projects.

    But what George Bush and anyone who supports the bill are trying to say is that this bill needs to be passed. Capital needs to get freed up. And anyone on this side will use this argument, though it is not infallible in any way.

    Either how, the markets were up 485 points. So, trying to translate gains and losses in Wall Street is a tough job.

    Though I would think a rather fair one. Because the -777 point crash was on the Dow Industrial Average, an index of the top 30 corporations, which effectively are the movers and shakers in this economy. So, this drop in valuation hurts their ability to raise capital.

    Example: One of the reason the Fed had to intervene with AIG was that it could not raise $ 85 Billion that would have got AIG's capitalization back in order. In a bullish market, I don't think a bulwark like AIG would have had a problem raising that money.