Major Meltdown, Man!


Note to self: Start thrash band called Toxic Assets.

So you may have noticed that the Dow lost nearly 800 points on Monday. Yep, I caught that one too.

Opposition to the bailout (in its current negotiated form, somewhat improved over the initial blank check Paulson wanted) seems to follow a couple different lines. On the far right we hear something like, "This is a big-government solution! Government sucks! Did I mention I hate the government?" Others see the bailout as nothing more than a gargantuan scoop of Meow Mix for the fat cats. After all the lies and the looting by the Bush administration, this suspicion is not entirely unfounded.

A conversation with a friend who knows a lot about housing and financial markets — and who is certainly no fan of Bush — confirmed for me what I’ve been reading, however. The bailout is intended to stanch a growing credit crisis. Already, banks are having trouble borrowing from other banks. This can affect ordinary people in short order. As my friend put it, say a company has $2 million in a payroll account. The bank lends that money out, as banks are wont to do. Payday comes around, and the company needs to withdraw part of that — but the bank can’t borrow the money back. Workers don’t get paid. This is just one possible grim scenario. My friend was adamant that members of the House (hi, Virgil!) who voted against the plan did not understand the situation.

Recommended reading: Paul Krugman’s blog, this post on Daily Kos (via This Modern World), and this NYT article that just popped up tonight.