Poll Results: Will the US Bailout Plan Work?

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You know that stock markets and the economy are in trouble when the otherwise dour passport officials at Heathrow airport sympathize with your “investment manager” occupation. “We feel so sorry for you,” said the uniformed lady who usually asks trick questions. “But don’t worry, we’re al suffering.” I guess we are.

The US Congress on Friday passed the government’s $700 billion bank rescue plan, giving the Treasury secretary extraordinary powers to buy toxic mortgage securities from financial institutions.

Somebody remarked that the problem with financial institution balance sheets was that “on the left-hand side nothing is right and on the right-hand side nothing is left”.

And, after all, what will $700 billion buy? As shown by Angry Bear, seven financial institutions, leaving hardly enough change to get market lending started again.

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Given the controversial nature of the bailout plan, I decided to conduct a snap poll on the issue of whether the plan would work. More specifically, I tried to gauge my blog readers’ sentiments on whether this step would be sufficient to break the logjam in global credit markets.

Interestingly, according to reader Tom, one of the American Heritage dictionary’s definitions of “work” is “to proceed laboriously”.

Be that as it may, a total of about 821 people participated in the poll and answered as follows:

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Based on the comments received on a number of previous “bailout” posts on this site, the 70.4% “No” vote does not come as a surprise.

As indicated by the stock market’s reversal of fortune on Friday after the vote and the subsequent sell-off, the poll results suggest a great deal of scepticism regarding the modified Paulson plan and, possibly, the realization that the financial turmoil is foreshadowing a hard landing for the US and European economies.

The “relief” plan is fundamentally flawed, is funded by taxpayers and will not make the credit problem go away. I certainly would have preferred a more direct approach to recapitalize financial institutions. But the administration’s package, together with other interventions, should at least serve the purpose of countering the massive deflationary forces of the turmoil. Remember: Debt + Deflation = Devastation. I would not be surprised to see coordinated and aggressive rate cuts by the US Federal Reserve Board, the European Central Bank and the Bank of England in the immediate future.

As our plane starts descending on Frankfurt airport, I’m reminded of yesterday’s guest post by Niels Jensen of Absolute Return Partners, entitled “The helicopters are coming” …

Related articles:
Poll du Jour: Will the US bailout plan work?
Global liquidity crisis: What now?
The helicopters are coming

 

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