Since Thursday, when the Senate voted Yes on the bailout and an okay by the House looked probable, the Dow has dropped 500 points. The Dow really started dropping today at about the time the House passed the bill.
The market is saying, we don’t believe in the bailout.
Here’s what is almost certainly coming.
Some time after the U.S. presidential election, with credit markets still a mess, banks failing all over the landscape, and no real end in sight, we will likely see the new president pull together some sort of TARP II commission. What should we do, post-Paulson, to prevent this crisis from further deepening and continuing? Top of the agenda will be further fiscal stimulus, and, in all likelihood, an explicit recapitalization of the banking system, with government picking favorites.