Let’s see, if markets around the world are capitalized at about $50 trillion and they declined, say, 5 percent on average as a result of Congress’s vote, then about $2.5 trillion of wealth vanished (okay, maybe a bit lower, according to Jim’s account of Asian markets; the rest of the world looks less good). For the United States alone, the loss is about $800 billion. Even by Congress’s standards, this is impressive. Further thoughts –
1. Perhaps, the market’s response to the failure of the bill came as a surprise to some. Now that it’s clear what’s at stake, the world should be willing to pay up to $2.5 trillion to get Congress to change its mind. Surely this is enough? Intrade says no; I’d bet against it but I prefer to keep my money under my mattress, thank you. Anyway, the Chicagoan in me says that the market decline already reflects the probability that a subsequent bill will also fail or will come too late.
2. Ilya and Casey say that the bailout was just a transfer of wealth from taxpayers to shareholders. Maybe. But most taxpayers are shareholders, and the return seems pretty good. Even if we confine ourselves to the U.S. stock market, a return of $800 billion on an investment of $700 billion (actually, a lot less, given that money is used to purchase assets that will eventually be sold again even if at a loss) is not bad. If we count the world’s $2.5 trillion, the return is quite excellent. (I realize this is not a controlled experiment, but we have to use whatever information is available. As Ilya hints, he can salvage his theory by arguing that the failure of the bill tells shareholders that subsequent bailout bills, spending even more money, are less likely than before.)
3. Intrade says that Obama and the Democrats have benefited. That sounds right to me. The bill is identified with the Democrats, who crossed party lines to make a deal with the Republican administration. Nearly every knowledgeable person supported the bill – in the sense of believing that the bill was better than nothing, even if he or she believed that some variation would be even better than the actual bill. Republicans are seen as obstructionist, perhaps influenced by libertarian arguments they read on VC (just kidding).
No, the real reason for the no votes is that constituents of at-risk members of Congress don’t want to bail out Wall Street. Do these constituents have any insight into the risk that the current financial crisis will cause significant harm to the economy? I doubt it. Perhaps, these words should be carved into the entablature of the Capitol:
“We’re all worried about losing our jobs,” Rep. Paul Ryan, R-Wis., said, endorsing the bill and voting for it after leading a rebellion against an earlier version last week. “Most of us say, ‘I want this thing to pass, but I want you to vote for it, not me,'” he said, speaking for colleagues who have tougher re-election fights than his own.
4. Can the administration be faulted for failing to make an adequate case for the urgency of the situation? Just how is it supposed to do that without being accused of exploiting people’s irrational fears in order to expand executive power?
5. If Congress is paralyzed, what can the executive do on its own? Where is that constitutional dictator when you need him?