Note to all the politicians who got scared by last Monday's Dow disaster of 777 points, and then turned around to get the pork ridden bailout bill passed later in the week: The DJIA is down by about a 1000 points after the bailout bill was passed the bailout bill.
The stock market may be the popular lens of looking at the health of the economy, but the practice of targeting asset prices is one of the reasons why we got in to this mess in the first place. It was never clear how the Paulson bailout bill will help to reduce the near-term credit market problems. The hope behind the Paulson plan is that the present conditions in the credit markets is merely a crisis of confidence and that confidence will be restored with the sight of the 700 billion dollars on the horizon. The fact remains that many financial institutions are insolvent, and no amount of posturing can alter that reality.
Secretary Paulson started with a bad idea, and scared the Congress in to passing a bill. Now that the bill has passed, but the credit market problems are still with us, more sensible ideas such as injecting equity directly in the banks in exchange for preferred shares that yield a fixed dividend are gaining more traction, at least in the U.K. (via Krugman)