Wow, that sure lacked drama

Lacking drama? This bailout has been so dramatic from start to (near) finish, some members of Congress might get nominated for Academy Awards!

In a low interest rate environment, if investors have the choice to lend to the government by purchasing low-risk government bonds (issued to finance federal deficits) or to lend available capital for productive business activity (higher-risk with only a marginally higher yield)--which do they choose?

As economic conditions weaken, the preference for government bonds grows (flight to safety), thus creating a vicious cycle for businesses seeking capital.

So problems in the credit markets could easily be traced back to our growing federal budget deficits, which have vacuumed increasingly large amounts of capital from the credit markets, sucking up money that might otherwise be used for legitimate lending and productive business activity.

A $700 billion bailout, which will necessitate the government to 'borrow' an additional $700 billion, will make this credit crisis worse, not better.

In other words, if the government borrows the $700 billion to fund this bailout (by issuing treasury bonds), then $700 billion will be correspondingly sucked out of the global pool of capital available for lending. That's a zero sum game.

BAIL OUT HIGHWAY 61
(to Highway 61, Bob Dylan)
Revised Lyrics WilliamBanzai7

Oh Bush said to Paulson, "Lets have us some fun"
Hank says, "Man, you must be puttin' me on"
Bush say, "No." Hank say, "What?"
Bush say, "You can do what you want Hank, but
The next time you see me comin' you better run"
Well Hank says, "Where do you want this financial chicanery done?"
Bush says, "Out on Bailout Highway 61."

Well Dick the Gorilla he had a bloody nose
Dr. Ben said they wouldn't give him and Lehman no clothes
He asked poor Ben where can I go
Ben said there's only one place I know
Dick said tell me quick man I got to run
Ben just pointed with his FED gun
And said that way down on Bailout Highway 61.

Well the Goldman banker said to Hank the King
I got 20 Billion AIG red white and blue credit default strings
And a thousand telephones that don't ring
Do you know where I can get rid of these things
And Hank the King said let me think for a minute son
And he said yes I think it can be easily done
Just take everything down to Bailout Highway 61.

Now the Senator's daughter on the twelfth night
Told the her Senator father that things just weren't right
My money market's complexion is much too white
He said come here and step into the light he says hmm you're right
Let me tell the Senator mother this has to be done
But the Senator's mother was with the Senator's son
And they were both out on Bailout Highway 61.

Now the wily Wall Street banker he was very bored
He was tryin' to create a new financial wardrobe
He found a seedy promoter who nearly fell off the floor
He said I never engaged in this kind of thing before
But yes I think it can be very easily done
We'll just put some ads out in the Street
And do it again on Bailout Highway 61.

@Adam Florzak: I agree that the federal deficits of the past seven years have made this crisis worse. But deficit spending in the midst of a crisis isn't necessarily the zero sum game you describe. Although as I attempt to craft an explanation for why not, I begin to realize that maybe you ought to leave that comment on some actual economist's blog and see what they say.

I finally realized what the bailout bill is missing and why i dont like it. It needs something about Walmart in it. Could be some tax breaks for walmart, could be some fines for being anti-union, whatever. It just needs something. How can we have a bailout package for the economy w/o wal-mart? Plus they have a bank or check cashing subunit or whatever it is that caused some hooha a while back.

the politicos know the economic crisis train has already left the station and nothing will stop it from wrecking itself.

why get the blame for the wreckage? they decided to pretend that they are doing something that will never materialize anyway, LOL.

so wall street claim they have lost trillions that they never had in any real sense in the first place and want to steal from the public.

the public can pretend to give them dollar notes that will be worth nothing in the future anyway.

nice game going there, LOL.

They should call it PASSMIWCISETWTWNPI Act.
People Are So Stupid Maybe If We Call It Something Else They Will Think We Never Passed It Act.