Another day, another drama thanks to the U.S. financial system and the U.S financial regulators. After years of lecturing the Japanese on how they should operate their banking system. the U.S. bankers now finds themselves choking on humble pie as Japanese companies move in and take significant stakes in U.S investments banks.
But the 700 billion dollar question is now if the Henry Paulson bailout plan will get through congress and if it will save the day. The answer to the first part of the question is “Yes”, of course a rescue plan will get passed by congress, there is too much to lose in terms of political capital if it does not.
Both sides of U.S politics will blame the other side for the delays of course, both sides will say they modified the plan so it benefited U.S. taxpayers but at the end of the day one side will blink and some form of the bailout plan will get passed. What the bailout will cost nobody can be really sure, with any luck it will be less than $700 billion and maybe it will help resolve the crisis.
John McCain and Barack Obama are both playing games as you would expect in the lead up to the presidential election. Obama needs to cast the Republicans as part of the problem (in bed with those greedy bankers) and McCain needs to get the problem fixed as soon as possible (because it is hurting him in the polls) without looking like a Bush lackey.
The truth is that both Republicans and Democrats are to blame, because they are suppose to be watching the regulators, who in turn are suppose to be keeping an eye on the investment banks to prevent a crisis from happening. It seems the corrective measures taken after the Savings and Loan Crisis in the late 1980’s/early 1990’s were either forgotten or were quietly sidelined when the good times arrived again.
As for the second part of the 700 billion dollar question, the experts are well and truly divided regarding the answer. Many pundits are of the view that the bailout measures will get things rolling again and there should be no delay in getting the measures through congress. Whereas others such as Jim Rogers are very critical of Paulson’s plan and feel it is just a way to bail out failed bankers.
Both sides of the debate have valid points although I tend to side with Jim Roger’s viewpoint, after all why should the government help bail out institutions that have failed due to bad management? Nobody bailed out Worldcomm or Enron, and if you keep bailing out banks are you not setting things up for yet another crisis?
All I can say with some degree of certainty is that some version of Paulson’s plan will be passed by congress in the next few days, the stakes are too high for either party to hold out for much longer. After that it is anyone’s guess what will happen although we should see some nice rallies on the worlds markets once the bailout plan is approved. (or looks like it will be approved)
So as the saying goes “hang onto your hats”…we are in for yet another bumpy ride on the markets.