The Dow Jones Industrial Average plunged even further on Thursday, closing down another 444.99 points, or 5.5 percent. Who gets the blame this time?
On Wednesday, the New Yorker's James Surowiecki defended a Detroit bailout by arguing that the financial markets were freaking out over the possibility of a Big Three bankruptcy:
More important, the financial markets are clearly telling us that the automakers' failure would be hugely important to the economy. They're telling us both figuratively -- just look at the massive sell-off we've seen in the past week and a half -- and literally, since, day in and day out, traders and money managers are talking about how the fear of a G.M./Ford bankruptcy is dragging the market down.
The Economist's FreeExchange blog promptly disagreed:
This seems far too credulous for Mr Surowiecki. Sure, the issue of the car manufacturers is probably weighing on markets. So is a lot besides. Housing data, price data, bad signs out of the commercial real estate arena, continued pain for financial institutions, scary Chinese manufacturing data, and so on. Markets have a lot on their minds. On the other hand, markets have known for some time that the automakers are in dire straits. People have been speculating about bankruptcy and predicting share values of near zero for months. Markets should have built in a decent probability of failure some time ago.
But did they? While there is again no shortage of bad economic news today, clearly the big story of the day has been the decision by the Democratic congressional leadership to postpone a vote on any auto bailout until Dec. 8. The decision followed news reports suggesting a bipartisan group of senators had come up with a deal to provide temporary bridge loans to automakers, which briefly sent stock prices sharply higher. But once news began to trickle out that Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi saw no chance of a vote happening today, prices began to decline again. And after the House leadership press conference giving the auto industry a deadline of Dec. 12 to come up with a viable plan, the market went into free fall.