A very lot can still go wrong
Start with Krugman, the Nobel laureate, who reminds us that things went really wrong during the regime change between Hoover and Roosevelt. I remember from my own American history class of the epoch how integrated the auto industry was to the commencement of the collapse: Henry Ford kept building cars even though nobody was buying. The stock market crash just confirmed what piling up inventories already documented. When I saw the helicopter shots of the acres of cars down in the Port of Los Angeles the other night, it brought 1929 to mind.
"We now know more," the economists today are assuring us, so this is not a repeat of 1929. Indeed we do. We knew enough to leave the investment banks unleashed even after they failed us catastrophically in the late 1980s. Now that we're turning them into commercial banks, with access to the Fed window--hah!--we'll lose a little of that wild, mavericky American vitality, but not get caught with our pants down so low again.
I've got a couple of opinions for you that maybe you haven't heard, and they are more from my days as a banker than as a reader of scribes.
One, I believe that Paulson was just joking about that $700 billion bailout, and so was Congress. I believe they passed it to get the investment banks to disclose what their exposure to losses were. Remember, with all the offensive, toxic instruments kept off balance sheets, even the Fed and Treasury didn't have any idea as to the true extent of the damage. But where the carrion is, there the vultures will be, and after the investment banks started applying for relief, then the government had a true snapshot of the damage at last. So then, Congress and Paulson both did an about face.
Two, only a handful of people in Congress were party to that strategy from the beginning. Only a few needed to be.
Three, with the $700 billion carrion passed, the vultures are not in industry, they're in and at Treasury. Paulson of course wants to spend as much as possible but now he's done. Michigan is getting muscled out of the relief package, California is muscling in. It is about goddamn time. If what's good for GM was once good for America, what is now good for California certainly is. Now that GM's share of the auto market is a scant 25%, it's only a little itty bitty good for America these days anyway.
Four, we're not going to let the big three fail, but we're not going to give them money without a whole bunch of trade strings, either. They will have to perform in accordance with Congress's wishes, and they will have to perform in a way that encourages.
Five, the Sarah Palin wing of the Republican party still wants to blame Obama for everything and doesn't realize that we're in this sinking boat together yet. Forget 'em---they're now dead-enders, marginal voices, a waste. They. Don't. Count.
Yes, a very lot can still go wrong as the Bush team scuttles the very boat it no longer has the power to bail out. But two months is a very short time financially, and if some businesses can't hold on for sixty more days, they really weren't in a good position to survive at all anyway. In this case, a lot going wrong may be the first good thing we've seen from the free market in a long time.