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More Bailout Thoughts

WARNING: This stuff is a little bit above my pay grade, but I hope you’ll indulge my thinking out loud:

1. It’s highly likely that some sort of bill will pass the Congress. What kind of bill, I don’t know. But the Dow is liable to act as something of a thermostat. The lower the Dow goes, affecting people’s 401Ks, the more banks that fail, the less unpopular the bailout becomes, and the more of those swing district congressmen will flip over to support the package.

2. Now, if the Dow is rational, it ought to recognize all of this. What were the chances as of this morning that the 110th Congress was going to pass some sort of bailout bill before it adjourned? 90 percent, I’m guessing? What are the chances now? Higher than you’d think because of the thermostat effect I described above — perhaps 75 percent. So if a 15 percent reduction in the probability of the bailout passing was worth 600 points on the Dow (and granted, that 15 percent number is plucked out of thin air), what would a complete failure to pass the bailout translate into? A 4000 point loss?

3. Yes, the Democrats absolutely have the Republicans by the short and curlies. An LA Times/Bloomberg poll released last week revealed that 32 percent of persons blame Wall Street for the financial crisis — generally conceived of as a Republican institution — and 26 percent blame the Bush Administration. Just 11 percent blame Congress. The worse the economy gets, the more of a hole the Republicans have to dig themselves out of.

4. Having said all of the above, the schadenfreude of certain liberals on this issue is absolutely obnoxious. A lot of people are going to be hurt by this, and not just those in the investor class. I tend to see this more as a failure of our democracy than a reaffirmation of it. The congressmen who are retiring this year — and who therefore can perhaps be described as the most neutral arbiters of the public good — voted overwhelmingly for this measure.

Nate Silver founded and was the editor in chief of FiveThirtyEight.