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October 12, 2008
Shut Up And Bail
As stocks traded around the world on October 1, the bailout was in trouble. The last thing that had happened was the US House of Representatives had voted against it. The market held its breath, hoping against hope that wiser heads would prevail. Then on the night of October 1, the US Senate passed a sweetened-up version of the bailout. By October 3, the House passed and President Bush signed the sweetened bailout. The world financial markets were saved.
As the markets take a breather this weekend, let's look at what happened over the seven business days after the Senate's vote, that is, from the close of October 1 to the close of October 10.
Market 10/1 close 10/10 close Change
Nikkei (Japan) 11,368.26 8,276.43 -27.2%
S&P 500 (US) 1,161.06 899.22 -22.6%
Dow (US) 10,831.07 8,451.19 -22.0%
DAX (Germany) 5,806.33 4,544.31 -21.7%
CAC 40 (France) 4,054.54 3,176.49 -21.7%
FTSE (London) 4,959.60 3,932.10 -20.7%
Nasdaq (US) 2,069.40 1,649.51 -20.3%
Straight Times (Singapore) 2,358.91 1,948.33 -17.4%
Hang Seng (Hong Kong) 18,016.21 14,796.87 -17.9%
The average loss of the above markets: 21.3%.
To an unsophisticated rube this would appear as if the world markets have judged that the bailout was a bad idea. Such rubes might therefore want to undo the bailout and try something different.
But sophisticated financial experts know that a 21% drop in world wealth in just 7 days is actually good news; it would have been worse without the bailout. In fact, the market reaction just shows that government needs to do even more than the measly $1.8 trillion the various bailouts tally up to so far. More government intervention is needed. And thank goodness Treasury Secretary Paulson is up to the task. He already has the government buying equity in US banks -- for the first time since the 1930s .
So sit back and relax. Our government is fixing the economy, just like it did in the 1930s. Can you image if we'd listened to the rubes instead?