Too little, Too late

I hate it when I'm right. The rescue plan for 700 billion dollars has had an underwhelming effect on world markets. Why? Because it was too slow. The liquidity crisis was and is one of confidence. Nobody was willing to lend money so it all dried up. It's not that the money supply was inadequate, it's that the nerve was missing. The rescue plan had the potential to restore some confidence and prime the pump for creditors to continue lending... if it was acted upon quickly. Unfortunately the government failed and acted too late.

The bailout was meant to prime the pump... the problem was by the time it got there the pump had run dry. Now what was meant as a primer is about the only available capital in the market at all. And as big as 700 billion seems, it's not even close to enough to keep the market moving. The government can't actually raise, print, or borrow enough to do pay for even one day's worth of credit demand in the world. It's impossible. Because we didn't act quickly enough that 700 billion is likely not going to be very useful to the broader economy beyond those specific earmarks and programs that were tacked on as sweeteners to specific congresspeople.

Net effect: bad. This isn't the time to quit your jobs folks. We now have the worst of both worlds, a busted economy stuck in a liquidity trap and future government intrusion into financial markets. Not only do we have no credit, when it does come back it'll be subject to closer inspection by oversight boards that will raise costs and disincentives for capitalists taking risks and investing their money. What a miserable failure of good governance.