Bailout Passes, Stock Market Drops (and other myths debunked)

Remember how earlier today I said that those who point to the stock market as an indicator that the bailout needs to pass are being silly? The proponents of the bailout, and Wall Street pundits, contended that Monday's stock market decline was because the House voted against the original version of the bailout - but that Tuesday's gains (when the bailout was in doubt) and Wednesday's losses (after the Senate passed their version of the bailout) should be ignored. But today the stock market declined after the House passed the bailout.

The Yahoo Finance story notes only the end-of-day loss, and claims that this occurred despite the bailout citing economic reports as the cause of investor caution. But those reports came out Friday morning, and yet the stock market was up 250 points at 1:30, as the chart below (or here) indicates, before dropping 400 point. Was it a coincidence that the House passed the bailout at 1:30, or did the stock market drop because of the bailout?

The good news is that Congress is going on recess - and 90% of stock market gains occur when Congress is out of session.

The other big myth (or big lie) used to support he bailout was that the bailout was needed because all lending has stopped. Yet Alan Reynolds of the Cato Institute writes that "bank loans have not dried up", with data to show for it. Note: his chart goes only through 9/17, but the data for 9/24 is up now, and indicates even more growth in lending - before the bailout passed but after Paulson claimed we were headed into a depression.

Finally in bailout related news, a lot of people have been talking about Bill O'Reilly going ballistic on Barney Frank for his role in the crisis and his support of Fannie Mae and Freddie Mack while they were crumbling. I just thought I'd pile on Frank, since he blames the free market, rather than the government/himself.

• Heritage: When Congress Fails
• Townhall: Barney Frank's Conflict of Interest
• WSJ: What They Said about Fran and Fred
• NY Times from 2003: Frank defends Frannie and Freddie from reform
• Barney Frank: Casting Stones from a Glass House
• Business and Media Institute: Media Mum on Barney Frank's Fannie Mae Love Connection
• Open Secrets: Fannie Mae and Freddie Mac Invest in Democrats