Just a note today. It looks like significant progress has been made on the housing bill. I expect it to be passed within the next day or so. It appears that Congress looked at the pressure on financial system and decided something had to be done or most of our banks were going to die.
Take a look at this graph from Deutsche Bank on lending from the discount window:
As you can see, the lending from the discount window soared in September as the crisis continued to worsen.
Bloomberg reported that banks were borrowing $180 billion a day from the Fed last week. This is why Paulson frantically ran to the government begging for a bailout. He realized that the lending escalation from the Fed along with a run on money market funds was about to blow up the whole financial system.
What I find funny is how the invesmtent banks stopped lending all to together late in the summer in an attempt to show the world that they were strong and didn't need to. I guess that idea went out the window when all hell broke loose this month!
Now as I have said before, I don't think this $700 billion is going to be enough to solve the problem. This is nothing more than another band aid that will hold things together for a little while longer. This dam is eventually going to burst because the leverage in the system needs to be unwound.
Our economy is drowning in debt and we can no longer afford to service this debt. Our politicians realize this.
Why do you think the Democrats didn't approve this plan yesterday on their own if they were so confident that it would work? They had enough votes to do it. The reason they didn't is because if this plan doesn't work and the Dems passed the bill, they get blamed for it.
If they were confident in the plan, it would have been a no brainer to jam it through because they could be annointed as the political party that "Saved the financial System!". I think everyone in Washington realizes this bailout is a "Hail Mary".
Expect the mother of all bailouts to be passed by Monday or Tues. at the latest. It will be interesting to see how the stock market and world reacts to it. If the credit markets don't loosen up significantly from this, expect the fear to be right back up to the pre-bailout levels.
Lets see what happens!