President Bush - trying to woo legislators who scuttled a $US700bn Wall Street bailout - warned the threat to the US economy will worsen each day which passes without a rescue package. He summed up the crisis: “Our country is not facing a choice between Govt action and the smooth functioning of the free market. We’re facing a choice between action and the real prospect of economic hardship for millions of Americans…” Trouble is, he sounded just like he did when urging legislators (and the public) to support the Iraq invasion.

Less Risk Here? Down Under, where there’s a risk our “technical” recession will be prolonged or the upturn blunted by the global fallout from the US financial fiasco, we can applaud the serendipitous timing of Cullen’s pump-priming tax cuts (more luck than good management). We also can hope (probably forlornly) Bush has the answers. He put the $US700bn in perspective by noting the one-day stock market drop on Monday, after the House rejected the project, represented more than a trillion dollars in losses. He also said the US Govt blueprint for buying troubled assets and reselling them later could recoup all those funds if and when those assets gain value.

Some Support. Among champions of the bailout are Robert J. Shiller, Professor of Economics at Yale and Chief Economist of MacroMarkets LLC, who took issue with the charge “it is financial socialism and it is un-American.” He says the near-collapse of the US financial system and Washington’s sudden and massive intervention to try to shore it up certainly marked a major turning point, but a bailout would represent “a thoroughly American next step for our economic system - and one which will probably lead to better times.” Moreover, the US economy is not a shining example of pure unfettered market forces. “It never has been.”

But Dissent As Well. Harvard’s Ken Rogoff, a former Federal Reserve and IMF official, is sceptical. “The plan’s central conceit is Govt ingenuity can disentangle the trillion-dollar sub-prime mortgage loan market, even though Wall Street’s own rocket scientists have utterly failed to do so.” As to the Govt plan being enough to make money (maybe) on the whole affair he says “perhaps, but let’s not forget a lot of very smart people in the financial industry thought the same thing until quite recently.” He tartly reminded us who will be hired to figure out what must be done - “Why, unemployed investment bankers, of course!”

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