Bailout Theory

I have a theory on the economic bailout plan that’s being proposed in the states. Disclaimer: I know as much about economics as I do about fixing cars, and I’m all proud that just last week I changed the headlight bulb by myself.

Here’s a quote from Dave Winer with some back story:

Now we have … Henry Paulson, who says there’s impending doom, but he can’t say exactly what it is, it’s not security this time, but fear of starting another level of bank runs. Senators and Representatives come out of a Thursday night meeting with the secretary … won’t say exactly what he said, but they are stunned. The next day buried in a sea of press about this event is an almost innocuous paragraph in a NYT piece that talks about a flight to safety from the US Treasury money market. OMG

So basically, there’s a secret threat to the economy that increases the urgency for a bailout. What could this be?

My theory is that big foreign investors, say the Chinese or the Saudis, who have heavy investments in US banking and mortgages, have given the US an ultimatum: Bail this mess out, or we’re pulling out.

That truly would collapse the US banking system.