As we survey the wreckage left in the wake of the failed attempt to pass the Emergency Economic Stabilization Act of 2008 on Monday, there is some good news. The advent of the Jewish New Year, Rosh Hashanah, usually results in light trading on Wall Street. So Tuesday and Wednesday might not witness the kind of calamitous selling that swept the U.S. stock market on Monday, sending the S&P 500 to its worst day since Oct 17, 1987.
Of course, there's also some bad news. Congress typically is out of session during Rosh Hashanah, so if the markets do continue their free fall, no one is scheduled to be minding the political store. Can that possibly be true? Will this financial crisis be allowed to simply roll forward, while Congress takes a break to welcome in Year 5769? The mind boggles. Investors in Asian stock markets, due to open in a few hours, will be unlikely to take comfort in such news.
Rasmussen released some polling data on Monday that suggests that not quite as many Americans oppose the bailout as was thought earlier. And in a press conference today, Speaker of the House Nancy Pelosi declared "What happened today cannot stand." So perhaps the vacation will be canceled.
Oh come on, what's the worst that could happen?
Princeton economist Alan Krueger has some cheery thoughts on what an ongoing credit crunch portends in the New York Times' new economics blog, Economix:
Obviously, jobs in the banking, finance, construction and residential real estate sectors will take a direct hit because the problem started with a bubble in home prices. But the damage is likely to spread to other sectors. Industries that rely on customers who use credit to buy their goods are especially vulnerable. Thus jobs in durable goods manufacturing -- such as autos, heavy household appliances and business equipment -- are likely to be hit hard.
Historically, most downturns have hit the least-skilled the hardest, as employers hold on to workers with unique skills who would be expensive to replace. This downturn, however, is likely to be more democratic than the norm because of the severity of the credit crunch. Research indicates that employers hire relatively more skilled workers when they invest in new plant and equipment, especially high-tech information and computing equipment (the so-called "capital-skill complementarity" hypothesis). If funds for investment are not available because of the financial crisis, however, companies will hire fewer skilled workers.
How bad could unemployment get? Perhaps not up to Great Depression levels of 25 percent, but U.C. Berkeley economist Barry Eichengreen predicted over the weekend that reaching 10 percent is not unreasonable, even if the bailout plan did not pass.
Meanwhile, Wall Street wonders, who's next? The Wall Street Journal's David Gaffen reported that two more banking institutions were hammered today: National City Corp. lost 63 percent of its value in the market Monday, and Sovereign Bancorp, 72 percent.
Twelve House Republicans are supposed to have changed their yes votes to no when Pelosi irritated them by decrying the $700 billion bill as the price tag for "the costs of the Bush administration's failed economic policies -- policies built on budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision, and no discipline in the system." The Republicans, of course, have never said anything hurtful to Democrats in times of great national crisis. But another day like today, and I predict that we will be hearing a different tune from House Republicans, holiday or no holiday.