This ain't Asymettrical Information, but us dumb political folks can learn from our more economically minder readers.
Reader D:
Your ornery reader is mostly correct* that Megan has it completely backwards about the value of T-bonds. More demand for T-bonds as a safe haven means the government can sell bonds at lower interest rates, thus reducing borrowing costs.
But another flaw in Megan's argument is that it's simply impossible to predict where the markets will be one week or month from now, let alone on Jan. 20. If the big bailout package stabilizes the system and things are looking up for the markets and the economy by the end of the year, the next president may be plausibly able to argue that any drop in revenue is temporary and will not require major changes in his agenda. This would be especially likely if it's Obama making the case to a Democratic Congress.
*Even the ornery reader whiffs on some details. For people buying bonds today, the bonds are "worth less" than those they could have bought a month ago, because today's bonds earn lower interest. For those who bought last month's bonds, their bonds are now worth more than face value because they earn more in interest than today's bonds. For bonds, yield and price move in opposite directions.
Reader V:
Policymakers are just starting to treat this as a potentially huge financial calamity. Congress didn't mind the failure of a bunch of institutions and didn't appreciate the underlying dangers that have been bewing. The massive losses across the market this week, however, and particularly the huge problem in the money market account is what created the catalyst for the action we're seeing contemplated now. The money market industry -- 4.3 trillion in assets -- was literally headed for elimination which would have essentially suspended corporate funding and placed at risk the assets of a huge number of small investors who thought they were in safe assets. That was the edge of the precipice which seems to have created this action consensus. Prior to the last 48 hours there would not have been the political will to put more tax payer funding on the line as we now see.
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