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The Bush/Pelosi bailout has failed for now, thankfully. The bill would have given too much power to the executive branch to bail out the institutions that should be feeling pain for their bad investments. The question now is what to do. People are obviously spooked, thanks largely to media alarmism.
The stock market did take a dip after the rejection of the bill, but that's hardly surprising: investors are the ones who would have been bailed out: they gambled, they lost, tough.
The economy will probably need a stimulus to get us through the coming recession. This recession is not being caused by the lack of a bailout. It is being caused by the subprime mortgage situation that has been going on for several years. To think that a problem that took years to make can be solved overnight is foolish. The most important part of any economic stimulus is regulatory reform of the banking industry so that we can avoid the types of bad loans that got us into this mess. Let me be clear: in a sense it is GOOD that banks are loaning less money because it was loaning money foolishly that got us where we are today. Banks seem to be about to go too far however and not make even responsible loans (although so far there is not much evidence to support this prediction).
In another sense it is GOOD that real estate is not worth as much as it was in the peak of 2007. Those prices were obviously artificially inflated by excessive demand caused by excessive mortgage credit on terms that, it turned out, couldn't actually work for the borrowers in the long run. From the perspective of those of us who can't afford a home, this price drop is an opportunity to participate in the system of homeownership.
In closing, when you negotiate a deal, you have to negotiate with guts. Rejecting version 1 of this horrible, unjust bailout makes Wall Street desperate. If we play this right, and don't wet our pants in fear, we can craft a deal that stimulates the economy, gives society something of value, and doesn't bail out corporations that need to learn the lesson of their own folly.
Let's remember: we don't have one cent to bail out anybody, we have to borrow it all (ironically, if we don't borrow, they say, there won't be any credit!), and pay it back with higher taxes or lower spending.
