Defeated Bail-Out Bill

The defeated bail-out bill indicates a bi-partisan lack of confidence to take the liquidity missing from the financial markets off the sidelines.

Remember that the lack of liquidity--the illiquidity that is our current liquidity crisis--is not money that has just evaporated, or lost, it is capital that has been comsolidated, accumulated, and that causes deflation (a recessionary trend). The crisis is technically indicated, and predicted, by data presented in the IRS bulletins on income distribution, which shows an accumulation in the upper income braket not seen since just before the Great Depression.

The most effective way to reverse the liquidity crisis is to deconsolidate the capital, what the bail out will not effectively do without being from the bottom up. That would be the quickest and most effective way to reverse the deflationary trend. The lack of confidence in a top-down (Hamiltonian-style) bailout was very clearly indicated by worldwide negative equity markets.

Bailing out Wall Street by buying the bad debt (the "over-accumulated" wealth) will do little to unfreeze the liquidity sitting in private equity and under the control of hedge fund managers waiting for a reduction in the capital gains tax that causes the perverse incentives that results in the "over-leveraging" of capital to produce profit without growth (without expanding the pie), which is the problem.

What we are experiencing is a return to classicism, moyenage, and worldwide markets are much more progressive, much more sophisticated, than that.