The Boys Who Called Bailout
The nightmare scenario that’s now keeping me up: First of all, $0.7T is not going to cover this failure. There will be a second bailout and a third. Not that big a deal. It will be ugly politically and it will cause the dollar to devalue as we inflate our way out. That’s a given. But what nobody is thinking about yet is this: what happens if JPM or another player with huge derivatives exposure needs a bailout AFTER the boys in Washington have cried bailout a couple more times? At some point, the voters may decide they’ve had enough. And they won’t be any closer to understanding the situation that is unfolding at that time. It occurs to me this morning that the boys in Washington are so busy fighting this little battle that it has not even occurred to them that there is a war going on and that they might want to save their bullets. Government cannot assure any “soft landing” from all this, but it can create a hard one. And if JPM were to fail, the consequences would be unthinkable. It’s very worrisome that we’re already using that language now, because losing WAMU and pals is hardly unthinkable in the way that losing JPM would be.
Monday, September 29, 2008