No Bailout, What Now?

Despite Paulson, Bernanake, and Bush's assertion to Congress that the world would implode if a bailout bill wasn't passed, the bailout bill failed to pass. Although close, the House voted the bill down 228-205. It seems as if some congressmens' constituents have bombarded their representatives threatening to pull their support in the upcoming elections. When it comes down to it, a choice between a collapsing world economy and a lost election is no contest for some lawmakers: a collapsing world economy wins every time. In response to the lack of a bailout bill (or perhaps just the neverending rash of horrendous news about bank failures, spiking money market rates, record hedge fund redemptions etc.), the market absolutely crumbled with the Dow, S&P, and Nasdaq all down between 8% and 10%.
Rest assured, the bobbleheads on CNBC were back proclaiming that this was a PR problem and that the average American was just not smart enough to understand that a bailout of Wall Street is absolutely necessary for Main Street to continue to function. You see, small businesses and companies won't be able to pay their payrolls. If the average Amercian really understood the commercial paper market, which they don't because they're just too stupid, then they could grasp that buying toxic assets from overleveraged banks that made moronic investment decisions while paying their executives billions of dollars in compensation is the only way to insure that your local seven eleven can meet its payroll. Frankly, I propose that if the government wants to bail out main street, it should just bail out main street. Open up the discount window to everyone. Or, the government can buy every single empty house sitting on the market and create a squeeze in the housing market so that supply is constrained and housing prices can go back up. I can think of at least fifty more crazy ridiculous things that the government could spend $700 billion on that would be stimulative to our economy that does not include helping insolvent banks stay in business while saddling the US taxpayer with potential losses. So I'm glad the stupid bill didn't pass. I don't think it is the answer and I'm tired of all of the BS being tossed around that it is the only solution. I think the market is going lower regardless of whether we get a bill because the market largely underestimated how devastating a large simultaneous rush to the exits by every levered investment vehicle on the planet would be. Massive delevering explains why the nasdaq, an index largely populated by tech stocks that although cyclical, don't rely on the credit markets, was indiscriminately pummeled today. I suspect the Fed will probably lower rates if things get much worse. A lowering of interest rates, however, doesn't seem to be the answer either, as the Fed had to inject over $600 billion in the money market just to get the flow of funds moving again. So I'm crawling back in my bunker. Somebody call me when the VIX hits 60. I might buy a share of stock or two.