Ignoring warnings from President Bush and congressional leaders, the House rejected proposed legislation that would bail out failing financial institutions and help bolster the sluggish economy.
So what can Americans expect if political leaders dont pass a plan?
If there is no bailout, look for the credit markets to freeze up and a nasty recession. World loss of confidence in the U.S. economy, foreigners selling their holdings of U.S. assets, high real interest rates and a further sinking of the dollar,says University of Notre Dame economist Nelson Mark.
If you want analogies, look at the Argentinian crisis of 2001, and the Asian financial crisis. Both episodes were big setbacks for the countries involved, and International Monetary Fund (IMF) loans probably helped speed up the recoveries. Maybe we should ask the IMF for assistance,says Mark, who specializes in international asset pricing and exchange rate economics.
Look at things like the LIBOR rate — which is an interest rate for interbank loans. The one-month LIBOR is 3.71 percent, up from 2.47 percent a month ago, while the fed funds rate is 2 percent. This is an indication of pretty tight credit conditions. What we dont see in the rate is if banks are unwilling to lend even at the stated rate.
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