TCS Daily


The End of the U.S. Financial System as We Know It?

By Larry Kudlow - September 30, 2008 12:00 AM

A number of Republican House members and staff, along with others who are plugged in, are telling me that Nancy Pelosi and the Democrats will come back with a new bill that includes all the left-wing stuff that was scrubbed from the bill that was defeated today in the House.

As this scenario goes, the House Democrats need 218 votes, and they have to pick up a number of black and Hispanic House members who jumped ship because the Wall Street provisions, in their view, were too benign. So things like the bankruptcy judges setting mortgage terms and rates, the ACORN slush-fund spending, the union proxy for corporate boards, stricter limits on executive compensation, and much larger equity ownership of selling banks through warrants will all find itself back in the new bill. Of course, this scenario will lose more Republican votes. But insiders tell me President Bush will take Secretary Paulson's advice and sign that kind of legislation.

Personally, if this scenario plays out, I would probably withdraw my support for the rescue mission and switch to plan B, which would center on the FDIC and its bank-recapitalization powers. The bank-ownership issue, in particular, could lead to heavy nationalization of America's financial system with a three-house Democratic sweep in November.

I'm not forecasting, because I don't know the next bill's content. And while McCain's polls are heading south, he could still win. But a three-house Dem sweep to implement some off the very onerous provisions being talked about could set up the end of the U.S. financial system as we know it.

I'm gonna wait and see. Obviously, the financial markets are in total collapse today. And the economic outlook is suffering.

Tough day. One of the worst I can remember.

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5 Comments

I wish it were true.
There is much about the US financial system as we know it that SHOULD end.

Yes, and thanks to the last time it 'ended'...
...we got the New Deal.

Be careful for what you wish for. You just might get it.

We get the leadership we deserve
Yup, if you shoved what the public school 'educated' public knows about economics up an ant's behind it would rattle around like a BB in a boxcar.

Leave the U.S...
If this happens, the money will simply leave the U.S. and some other area, most likely East Asia, will become the financial center of the world.

Perhaps its time for me to start learning Pekinghua.

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