I sat all day in front of my TV with my eyes glued to the screen and my thumb glued to the remote, flicking between CNBC, CNN and CSPAN. Even though all three channels were streaming uninterrupted coverage of the same events, I had a hard time believing they were true. I was shocked and disappointed that the bill had not passed.
The pitiful blame game that ensued in Washington after the first attempt at passing the bailout bill failed made the hopes of passing almost anything in the House look dismal. For the first few hours after the vote, not a single nay-saying representative owned up to his or her decision. The Republicans blamed the Democrats; House Speaker Nancy Pelosi (D-Calif.) was at particular fault for her harsh words earlier in the day. She had explained how the "budget recklessness" of the Republican administration and the "anything goes economic policy" of the GOP had been the obvious cause of our current economic "chaos." She went further to speak disapprovingly of the "golden parachute" lawmakers had thrown together in this planned taxpayer "bailout" of Wall Street.
In listening to her speech, it is hard to believe that it was the Democratic majority that was fighting so hard to push the bill through the House; it is easy to see how her words offended the Republican minority. Republicans charged that it was the responsibility of the majority to pass the bill. The Democrats were unable to rally support in their own party, and this was a failure on their part. The Democratic naysayers hid sheepishly behind their constituencies for most of the afternoon.
In true form, Wall Street and the media reacted dramatically. The Dow plummeted 777.7 points — a seven-percent drop. Harsh headlines flowed out of newsrooms: "Bloodbath," "Financial Armageddon," "Massacre," "Wall Street R.I.P.," etc. It was almost surprising to wake up this morning and find the sun still rises. In fact, in the light of a new day, it seems some optimism has returned; 777.7 points is an enormous drop — trillions of dollars disappeared from the markets. IRAs, college savings accounts and personal portfolios fell in value across the board.
Alternatively, 777.7 points is just a couple hundred points below the level of the Dow before the bailout plan was announced. Monday's decline is being heralded as the biggest closing-point drop ever. This may be true, but 777.7 points was only seven percent of the index. In 1987 the Dow lost 23 percent of its value in a single day.
Monday's fall was the result of a panic. Market volatility, as measured by the VIX index, was at some of the highest levels ever recorded. The fundamentals underneath each of the tumbling public companies had not changed in a day. Granted, fundamentals will change if the credit spigot is not turned back on, but the legislative process is far from over. The bailout bill did not pass Monday, but that does not mean it will never pass. In interviews given Tuesday morning, House representatives from both sides of the fence seemed to be committed to fast action with equal fervor. The general outrage of both American and global economies and the brief taste of a credit freeze on Monday afternoon will hopefully be enough to persuade Middle America of the importance of this unsuitably titled "bailout."
As long as there is hope that this crisis will pass then there is hope for consumer and investor confidence. If fear can pull the market down 777.7 points then optimism can buoy it even further up. The decoupling theory is out the window; the world markets are falling faster and harder than our own. The American financial system has not totally surrendered its supremacy. There is still a chance to recover the world's trust.
As citizens and investors it is our job to allow for this hope. I am not suggesting naïveté: None of us should bury our head in the sand and hope by the time we graduate this will blow over. There are very few who truly understand what is going on and far fewer who know how to go about fixing it. Nevertheless, we must retain our pragmatism, which means being able to sort out what is truth from what is hyperbole. Panic and misinformation are our worst enemies. They are contagious and deepen the crisis unnecessarily. We must evaluate the fundamentals of our economy, our legislature and our investments.
As for the Tufts Financial Group, we will continue to invest as we have in the past: for the long run with a macroeconomic methodology. If over the next two weeks a solution to America's credit woes is not reached, then several of our current holdings and tentative investments could be negatively affected. We will have to reposition ourselves and like everyone else, prepare for a sharper economic downturn. Still, there will always be growth stories. If we catch a bear year now, then hopefully we'll catch the booming bull that's sure to follow.
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Maria Fulwiler is a junior majoring in quantitative economics and history. She is also the president of the Tufts Financial Group.
