Out of Control Policy Blog

Dow slides 800 points: I'm looking at you Pelosi

On Thursday last week I cited on this blog concerns by members of Congress that if they didn't pass the bailout quickly that the stock market would crash. Many were pointing out that it would take weeks to months for The Bailout money to actually impact balance sheets, but the investor confidence was shaking, according to The Bailout supporters, and that needed to be restored.

I also cited, in that same blog post, "DOW DROPS ON SENATE BAILOUT; HOUSE VOTES FRIDAY" that a trend had developed on Wall Street where it would drop when Congress talked about action or actually did something. And when Congress left the market alone, the stock market would be fine or gain.

Furthermore, I said in that post, "every action they [Congress] have taken has resulted in catastrophic loss." And now, that predicted trend has continued.

On Friday the Dow Jones was up roughly 200 points in morning trades, and the rest of the stock market was doing well too. Then the House voted on The Bailout. Almost at the exact same time that the Paulson bailout bill was passed and President Bush signed it into law, the Dow dropped over 300 points and finally settled at a loss of 150 points by the end of the day.

That trend continued even today, as Congress talked in committee meetings about adding more regulation to The Bailout. California asked Congress for $7 billion in bailout money and that is being considered too. Oh, and members of Congress have been discussing a stimulus package. What did that do? Drop the stock market 800 points by mid-day trading. For a reference point, the 777 the Dow lost last week was the most its ever lost in one day. By the end of the day the Dow had only lost 370 points.

And all that reveals a very troubling thought: it "only" lost 370. Just a few weeks ago triple digit losses and gains were rare to unheard of. These days the Dow is swing a couple hundred points one way or another every 20 minutes.

Congress has to get its act together and stop acting. They are not the only reason for this problem on Wall Street. The correlation between the Dow and Congressional choices is not purely cause-and-effect. The impact of foreign markets and the status of credit liquidity also play a significant role. However, it all can still go towards saying that Congress should stop trying to instill confidence by "doing" and start impressing us by "not doing."

Anthony Randazzo is Director of Economic Research


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