Congress today will vote on the Emergency Economic Stabilization Act of 2008.

The act was conceived as a $700 billion emergency defibrillation for an economy in cardiac arrest, but now includes a $170 billion perm, tatoo and piercing just because some moronic members of Congress thinks the patient will look better that way.

If Congress passes the act, prices will rise briefly as sellers back off and “hey, something good just happened buyers” trickle in, but then will sell off because the news was anticipated and the fundamental disfunctions of the economy — paralytic bankers, over-leveraged consumers, foreign-cash dependent Treasury — will still remain.

If Congress doesn’t pass the act — and who really believes these boobs won’t pause to at least put lipstick on the twitching patient? — then we’ll just go into an ugly slide immediately.

Sara Palin responding to “who caused the subprime meltdown?“:

PALIN: Darn right it was the predator lenders, who tried to talk Americans into thinking that it was smart to buy a $300,000 house if we could only afford a $100,000 house. There was deception there, and there was greed and there is corruption on Wall Street. And we need to stop that.

Again, John McCain and I, that commitment that we have made, and we’re going to follow through on that, getting rid of that corruption.

One thing that Americans do at this time, also, though, is let’s commit ourselves just every day American people, Joe Six Pack, hockey moms across the nation, I think we need to band together and say never again. Never will we be exploited and taken advantage of again by those who are managing our money and loaning us these dollars. We need to make sure that we demand from the federal government strict oversight of those entities in charge of our investments and our savings and we need also to not get ourselves in debt. Let’s do what our parents told us before we probably even got that first credit card. Don’t live outside of our means. We need to make sure that as individuals we’re taking personal responsibility through all of this. It’s not the American peoples fault that the economy is hurting like it is, but we have an opportunity to learn a heck of a lot of good lessons through this and say never again will we be taken advantage of.

The Charlotte Observer reports:

Inside Wachovia, executives started noticing customers withdrawing money on Friday morning, following the failure of Washington Mutual on Thursday. “The so-called silent run on the bank – it’s real,” Carlos Evans, Wachovia’s wholesale banking executive, said in an interview. “When Congress failed to pass the ($700 billion bailout) proposal, when WaMu collapsed, you could see the money flowing. My computer screen was lighting up.”

Starting Friday morning, Evans said, businesses and institutions with large accounts started withdrawing money to lower their balances to below the federally insured $100,000 limit. They weren’t closing accounts, he said, adding “they were very apologetic in saying they love the service they get from Wachovia and they weren’t leaving Wachovia. They were just moving their money until things settled down.”

Money flowed out of Wachovia throughout the weekend, said Evans who heard anecdotes and received memos and BlackBerry messages from bank employees in the field.

“What happened last week, and it literally happened that fast …You could go from being OK, hurt, weakened, there’s no question the company was weakened… but you go from being weakened to in trouble in a matter of days,” he said. “I don’t think people understand how quickly events unfolded.”

A buddy who is a corporate attorney in NYC writes:

We’ve been watching a slow motion train wreck for over a year now. What makes this so nerve-wracking is that, with the loss of trust and
confidence in the financial world and the massive deleveraging underway, there is no way to predict with confidence how bad this will get. Things which were inconceivable two years ago (15-20% unemployment for example, cannot be dismissed out of hand any more). In my small part of the world, I’m seeing a large number of portfolio companies of private equity firms in covenant default, companies that need to file for bankruptcy unable to do so because they can’t get a DIP lender and enormous redemptions from hedge funds. My business has slowed significantly and my firm is going to have to face some very difficult decisions about whether to abandon certain business lines (and fire a bunch of lawyers) in the near future.

Sean-Paul Kelley visiting Thailand.

A friend who works in finance in NYC writes:

these are the scariest, most stressful times i have ever lived through: probably equal in magnitude to some past short spurts but the magnitude and the tape bombs are incredible. i worked the whole night lehman filed for bankruptcy. it is amazing how fast the names in the fin’l community have changed and how fast the shape of the fin’l system has changed. an era that started just before i got in the biz has ended… i am keeping my powder dry. have avoided a lot of the downside- i nver bot into 70% eqty. i was probably 30% last aug and have whittled down to about 10%, and seek the LOWEST yield in my cah- tsy only money mkt fund and tsy’s themselves. i did get knicked a bit in fannie pfd’s- only b/ i cant stand my voice broker at smith barney whom i threw a bone and gave a trade. the stuff i bot myself electronically, i sold at a profit. since i am only 10% in stocks and i have some short term losses, i am trading short term when i am not totally swamped doing my job, which is not often. i have done 3 trades, sent 2 bbrg’s and had 2 quick conversations in the span of `5 minutes it is taking me to write this… i feel like exam time back in school- exhausted, cramming for exams, just tryingto get to the finish line.

(A “bbrg” is a message sent through Bloomberg.)

A banker friend in London writes that the credit crunch has had a positive impact on his relationship with colleagues: “for the very first time in my career I didn’t get mad when the old grey guy on Credit Committee tried to reject my deal by pointing to the interest rate hedge and saying “and what if Treasuries go bankrupt?”

One week before the credit crunch really starts to bite, claims inched higher:

In the week ending Sept. 27, the advance figure for seasonally adjusted initial claims was 497,000, an increase of 1,000 from the previous week’s revised figure of 496,000. It is estimated that the effects of Hurricane Gustav in Louisiana and the effects of Hurricane Ike in Texas added approximately 45,000 claims to the total. The 4-week moving average was 474,000, an increase of 11,500 from the previous week’s unrevised average of 462,500.

Bloomberg reports:

This loss of liquidity has driven a wedge between bids and offers, allowing traders to collect higher fees, said Kumar Venkataraman, 35, an associate finance professor at Southern Methodist University’s Cox School of Business in Dallas. He wrote a study on bid-ask bond spreads in 2006.

The gap on about 1,000 investment-grade bonds averaged 32 basis points last week, excluding about 600 securities with spreads of 100 basis points or more, according to composite pricing data compiled by Bloomberg. That amounts to about $24 in commission per $1,000 bond.

The difference was about 7 basis points, or $5, for investment-grade bonds before regulators created Trace in 2002. The Financial Industry Regulatory Authority computer system disseminates prices to anyone with Internet access. The gap narrowed to about 4 basis points, or $3, immediately after, according to Venkataraman’s study, published in the Journal of Financial Economics. A basis point is 0.01 percentage point.