{Stock Market Today, Stock Market, Debt Ceiling, Cnn Money, Dow, Dow Jones}:"Historical Insights From The TARP Bailout Vote Failure And The Market Crash In 2008

{Stock Market Today, Stock Market, Debt Ceiling, Cnn Money, Dow, Dow Jones}:"Historical Insights From The TARP Bailout Vote Failure And The Market Crash In 2008"

Traders of today can learn lessons from historical events where Politics and the Stock Market collided – with negative results.

Current Congressional gridlock is threatening another potential market crash via two separate but related events:

The US Debt Ceiling Negotiations ahead of August 2nd and the “Big Three” Credit Agencies warning that the US may receive a downgrade as a result of failed negotiations or a too small solution.

A full discussion of the current political and economical climate is outside the realm of this post, but I thought it would be helpful to study the most recent situation where Congressional gridlock helped usher in a literal stock market crash:

The initial TARP (Bail-out) Vote Failure and the 30% Decline in US Stocks over the next two weeks:

The chart above shows the stock market peak (Dow Jones) in October 2007 and the slow but steady downturn that resulted ahead of the October 2008 collapse.

Though there were certainly many negative headlines circling about during September and October 2008, I wanted to focus on the two votes for the initial (first) Bail-out Package – called “TARP” – and the aftermath that is currently being cited as a warning for what could happen again should Congress fail to pass a Debt Ceiling increase bill that the President will sign.

After a round of negotiations from then Treasury Secretary Henry Paulson and then President George W. Bush, the US House of Representatives voted on a controversial bail-out of financial institutions that was designed to stabilize the metastasizing financial crisis.

Notice that the stock market was in a relatively stable downtrend/decline until early October 2008.

After a contentious debate, the US House of Representatives – in what many thought was a must-pass ‘done deal,’ – rejected the initial TARP bail-out bill by a vote of 205 to 228.

Not only did this shock analysts and pundits, but it shocked the stock market as well, as it was assumed that this was a “must pass” bill that would be accepted. Read More