The NYT implied that the drop in stock prices was a vote of no confidence in Congress' efforts to pass a bailout. Actually, the decline (which was largest in financial stocks) can be an indication that Congress is likely to pass a bill, with serious restrictions on the benefits for the banking industry. If stocks rose at the end of last week on the expectation that the Bush administration would give the financial industry a big windfall, it would be expected that stocks would decline if most investors now believe that Congress will impose stringent conditions on the bailout. In other words, the decline in stock prices could be an indication that investors actually expect a bailout bill to pass Congress.
--Dean Baker
