HOW DO YOU TURN $700 billion into $1 trillion in a matter of hours?
Simple, by voting down the proposed rescue plan in a fit of either principle or pique.
The $700 billion, of course, was the size of the plan that would authorize the Treasury to purchase impaired mortgage assets. The $1 trillion was the amount that was erased from the value of the U.S. stock market.
Specifically, the DJ Wilshire 5000 -- the broadest measure of the American equity market -- plunged 1,024.27, or over 8%, to 11,322.76. Since every point on the DJ Wilshire is worth $1 billion, those thousand-plus points of fright were worth over $1 trillion.
Does anybody see a fallacy here? I mean, really, do the smart people on Wall Street think that a taxpayer financed injection of $700 billion to support prices at the margin is a fair comparison to the paper loss of financial institutions? After all, the money didn't actually go anywhere (except that those who sold put the money in their own accounts). But the bailout bill would have put real people on the hook for money from their real pockets.
If the Wall Street whizzes really wanted a stock market rally, they should just hope that the US government starts buying stock. That would probably be cheaper than buying the smoldering assets in the basement. Now that would be a plan. Governmental day-trading may be the best way out yet.