Its possible that the crisis in the financial markets is over. The bailout had a large effect. But obviously things are still rocky and another wave of panic could come very easily. My prediction is and has been for the last few weeks that what happens next depends on Obama. He took a very pro-worker line in the election and has commited himself to universal health care, reforming enviromental policy, the introduction of The Employee Free Choice Act, cutting taxes on the working class and increasing them on earners of over $250,000 and talked about increasing Capital Gains Tax. If he does all these things, or if the market comes to believe that he will fulfill some or most of his election promises there will be a panic and the financial markets will go into chaos, again. So far Obama’s major decicions the TEAB he’s announced, and his chief of staff are both ‘safe’ choices. But it is clear that the markets did not react happily to his election. In the two days following his election the stock market, as measured by the Dow Wilshire 5000 Index, lost $1.2 trillion in the two days following the election.
Terry Savage on The Street writes:
The stock market is always right. Nonetheless, I must admit to being more than a little annoyed that the stock market greeted the election results with a two-day nosedive, the worst two-day decline since the crash of 1987. Even Friday’s 250-point gain was little solace.
It smacked of Wall Street pique that the next president appears to be no friend of “the Street.” But the economic platform of our new president came as no surprise, so why the selloff?Yes, he promised to tax capital gains at the same rate as ordinary income, which would represent a huge hit to those who still have any capital gains remaining. But the smart money had already priced that fact into the stock market, selling earlier in the campaign as the candidate’s momentum picked up.
Certainly, President Obama will take a more populist approach to digging America out of its economic mess. But realistically, how much more could Wall Street have expected in the way of aid from the government? More than a trillion dollars has already been injected directly into the banking system by way of guarantees and capital stock purchases.