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What am I so afraid of?
The worst case scenario: Credit markets freeze up within the next week and many businesses cannot meet their payrolls. Margin calls cannot be met and the NYSE shuts down for a week. Hardly anyone can get a mortgage so most home prices end up undefined rather than low. There is an emergency de facto nationalization of banks to keep the payments system moving. The Paulson plan is seen as a lost paradise. There is no one to buy up the busted hedge funds, so government and the taxpayer end up holding the bag. The quasi-nationalized banks are asked to serve political ends and it proves hard to recapitalize them in private hands. In the very worst case scenario, the Chinese bubble bursts too.
Worst-Case Scenario: Dow Under 8400
Without the Paulson plan, or if the plan is so watered down and delayed, I have been saying all bets are off and we could be in for a huge swoon. How huge?
The End of Prosperity?
Congress's initial rejection of the Bush Administration's $700 billion bailout plan calls to mind an unhappy precedent. Back in 1930, the Senate passed the Smoot-Hawley Tariff Act, which raised duties on some 20,000 imported goods. Historians define this as one of the critical steps that led to the Great Depression — a tipping point when the world realized that partisan self-interest had trumped global leadership on Capitol Hill.
Originally posted by Benevolent Heretic
reply to post by whiteraven
I'm ready. Along with many, I have been expecting this for some time now.
And check the Survival Forum for what to do to get ready.
And it could be just this. Paulson's bail-out plan was never going to prevent a recession - which was likely even before the financial turmoil of recent weeks. Instead, it's purpose was to reduce the probability of a financial catastrophe in which banks failed; markets soared after he initially presented his plan not because the economic outlook improved, but because the probability of the worst-case scenario fell. Congress's rejection of the plan has restored this probability.