The refusal of the U.S. House of Representatives to pass the $700 billion bailout plan Monday may turn out to have been appropriate if the Congress correctly understands the priorities at hand. The issue is not whether the situation should be left to the market or whether the government should save those who lose their house due to foreclosure. The main challenge at this moment is to provide liquidity to the market, particularly to failing financial institutions.
From the experience of Japan throughout the 1990s, and also from the experience of Nordic countries, it is clear that the U.S. financial crisis is also going through a sequence of events — almost physical and also psychological — that are very similar to what happened elsewhere in the world.
The problem is that the U.S. leadership does not seem to understand exactly what happened and what lessons to reflect on, as is clear in the impulsive and almost heroic actions that they have exhibited over the last three months.