That Humongous Wall Street Bailout You Just Bought

News & Politics

After a few weeks of trying to stand tough in the face of demands for a wholesale rescue, Hank Paulson couldn't take it anymore. So now we'll have the biggest bailout in history. And it will only cost $1 trillion!



Not surprisingly, the market's up huge on this news: When stocks that were headed to zero get a reprieve and shortselling is banned, the expected response is euphoria. And, it's true, the Fed's moves should head off a run on money-market funds, restore liquidity to the financial system, and create a general "time out" for the panic to recede.



So what are the costs? Almost certainly:



* Higher taxes
* Higher interest rates on government debt
* Bigger government deficits



When the alternative is the entire financial system going bankrupt, these costs are acceptable. (I'm not convinced that that was really the alternative, but early yesterday, before the bailout news leaked, the country certainly seemed to be heading that way).



The devil will be in the details, and Congress will certainly have something to say about that. One big question, for example: Now that the government is rushing to the aid of Wall Street, is it going to do the same for homeowners?


The bailout could prove the final bottom in the stock market, although I doubt it is. Unless the government makes a similar move on housing (which certainly seems more plausible, given this news), the housing problem won't disappear. And until the housing problem disappears, American consumers will still be under pressure. But the future certainly looks brighter than it did yesterday.

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