Paul Krugman has had an evolving viewpoint on the bailout package as details have emerged. His position, however, has been very firm: “No equity, no deal.”

In Tricky bailout politics he writes:

So is it better to have no plan than a deeply flawed plan? If it was the original Paulson plan, no plan is better. Dodd-Frank-Paulson may just cross the line — let’s see what details we have if and when agreement is reached.

In The world according to TARP:

I don’t, in the end, have much more to say about the plan. It passes my test of no equity, no deal; that, plus the danger of financial panic if it doesn’t go through, makes it worth passing, though celebration is not in order.

His assessment is that taxpayer dollars are more likely to be protected with the equity and oversight provisions than the Paulson plan (he’s correct), and that this plan is better than nothing (which is where I disagree). Again, the costs are the alternate future where main street banks thrive. I think this bailout will slow the shift of dollars from the big banks to the local banks, and both will struggle as a consequence. Also, I don’t see any big gain on the equity issue, since it’s up to Paulson to figure out the best deal for everyone.

Other Views

Economist’s View has links to other views(all worth reading), and their own terse comment:

I’m with everyone else. The proposal could be better, but as I’ve argued all along, the problems are real and if this is the best we can get - and it appears that’s the case - then it will have to do.

Not all views linked to can be summarized as the above. That’s why it’s worth reading them.

The Future (Cue Ominous Music)

I’m watching the futures market right now. Over the weekend, I’ve watched DOW futures go through quite a swing. They are at -78 right now. That isn’t terrible, but it isn’t good either. With Germany, England, and Netherlands / Belgium / Luxembourg all dealing with major bank collapses (nationalizations, actually), it may just be spillover from the recognition that the whole world is currently hitting tough times.

I’m beginning to think that we won’t see a rally from this bailout. That gives me reason to be concerned. I’m going to sleep on that. My initial impression: If there’s no rally, things could get ugly. It means that the market vote can no longer be swayed by government intervention. I don’t believe we are at that point. I figured we would actually need to see a crash to get there, and the mood would shift almost entirely in a couple days (along with a plunge in the value of equities).

The lack of a rally would indicate that the market has lost faith in the ability of the government to stop the bleeding. If that faith wasn’t there prior, I would say that would indicate a bottom. In that case, capitulation already occurred, and there will be no crash (that’s redundant if the bottom has been reached … I must be tired). On the other hand, if this represents a view change, capitulation has not yet occurred, and a crash may still happen. I think the evidence supports the latter: after all, the market seemed to rally, retreat, and rally as the news of the progress on the bailout changed. Perhaps those rallies were just coincidental with the news? Possible, but it would mean the main stream media’s analysis of the market movement over the last week was incorrect (as was my own).

Yeah, I really hope we see a rally from this bailout. Unfortunately, “Hope” is a four letter word. The analysis of a rally is much easier (and nicer) than the alternative. I’d get to sell the rest of my calls, get some more cash, and adopt a wait-and-see approach. I might even buy a few more puts if the price is right.