Without the $700 Billion bailout bill, what happens now? Like anything in the modern economy, it's complicated. The crumbling mortgage markets remain the driving source of trouble. Banks which have invested in these mortgages are facing liquidity problems, and that means they must, by necessity, curtail their positions in other debt instruments. In English, that means that businesses which rely upon lines of credit from banks for operating capital will be facing extreme cash shortages as those lines of credit are closed out by banks. Other business rely upon consumers being able to access credit to purchase goods. Car dealerships, for example, will find that customers simply can't get car loans anymore. And as the credit freeze deepens, jobs will be lost and small businesses will fail.
Of course, it's possible that Congress will reverse itself, but don't count on it. Conservative Republicans live and breathe an ideology of keeping the federal government out of the markeplace. They are not likely to abandon that ideology just because a Second Great Depression looms ahead. Unfortunately, we have been here before. Faced with markets in a free fall, Herbert Hoover expressed his faith in the market free of government interference. Like Congressional Republicans, he clung to his ideology as the Depression dug in. There is, however, one key difference between 1929 and 2008. The 1929 crisis took place 3 years before the country could elect Franklin Roosevelt. This crisis takes place just a month before we can elect Barack Obama.
