Lex: What next? | FT Alphaville

Lex: What next?

The sense of panic that prevailed when Hank Paulson first brought his $700bn financial sector bailout plan to Capitol Hill for consideration may well have ebbed by the time the House voted Monday to reject the plan, says Lex. The failure of  WaMu and the rapid sale of Wachovia to Citigroup provided doubters with arguments that the system could already absorb the problems of ailing banks. Economists were quibbling over the inadequacies of the plan as it stood. Suggested alternatives, such as directly recapitalising wobbly institutions, were gaining ground. A monumental game of chicken is now under way between the waverers and the equity markets. Shocked by the vote into a rout, US stocks plunged and the rest of the world rapidly caught the chill, with the MSCI World index recording the biggest one-day drop since its inception in 1970. What happens next? It may be that political game players can be talked round, having registered their disapproval. If not, the administration must find a creative method to put the weight of the government’s balance sheet behind that of the reeling financial sector – and soon.