[...] That morning, a Monday, Treasury Secretary Hank Paulson had announced a proposed bill that involved the US government buying $700 billion in mortgage backed securities to stabilize the housing market and the banks. The first vote on what would become known as TARP was set for that afternoon and President Bush was confident it would do the trick. Democrats in the House of Representatives voted for it (140–95) while Republicans voted it down (133 against, 65 for) and the legislation failed.
The stock market's judgment was swift and merciless. Wall Street - itself the epicenter of the crisis - was now weighing the effectiveness of our elected officials in Washington - and they had been found wanting. Consider:
The Dow Jones Industrial Average, what Mom and Pop look at when they want a gauge of the stock market (and economy) fell 777 points in the vote's aftermath. We sat on our bar stools stunned. It was the Dow's single worst point drop ever, with some $1.2 trillion in market value wiped out.[...]
This was the bloodbath that the pols needed to see, unfortunately. It made headlines around the nation and around the world. Federal Reserve chairman Ben Bernanke met with Congressional leaders, pointed at the destruction and told them the sky would absolutely fall without a bailout. He was right. Inaction was never an option.
A few days later, now scared straight, the Senate passed a revised version on the evening of October 1st with Wall Street's plunge fresh in everyone's minds. The House got another crack at the TARP vote on October 3rd and this time it passed 236-171. 63 Dems and 91 Republicans had still voted no, but common sense triumphed. Bush signed it a few hours later and the markets eventually stabilized (although the bear market was far from over.) [...]
Must the same kind of thing happen to force the politicians' hand to "do the right thing" (i.e. stop playing with fire) this time too? I'm sure you'll find some bearishly-positioned traders and a lot of non-market people rooting for just such a market event. Need I state the obvious here? Be careful, nay be very afraid of what you wish for.