• This is a rush transcript from "The Journal Editorial Report," October 4, 2008. This copy may not be in its final form and may be updated.

    PAUL GIGOT, HOST: Coming up next on "The Journal Editorial Report," the big bailout after a wild week on Wall Street and in Washington. Congress finally passes a $700 billion rescue. Will it work?

    And the great debate. She has had a rough few weeks in the press, so how did Sarah Palin do against Joe Biden?

    Plus, a look at the presidential race from here as we head into the final month. Polls have turned against John McCain. What does he need to do to make a comeback? "The Journal Editorial Report" begins right now.

    Welcome to "The Journal Editorial Report." I'm Paul Gigot. After a tumultuous week on Wall Street and in Washington, the House and Senate finally passed $700 billion financial rescue that many hope will forestall a complete collapse of the U.S. credit system. But the passage came as job loss numbers for September showed their biggest increase in five years, a sign that the economy may be headed toward recession.

    Joining the panel this week, Wall Street Journal columnist and deputy editor Dan Henninger, editorial board member Jason Riley, Washington columnist Kim Strassel, and senior economics writer Steve Moore.

    Dan, what a week. From Monday to Friday, 32 Democrats and 25 Republicans in the House switched their vote to pass this rescue after the Senate also did it with a much bigger majority. Did they do the right thing?

    DANIEL HENNINGER, DEPUTY EDITOR, WALL STREET JOURNAL: Well, Paul, we will discuss this bill in a second. But let's try to understand what was at stake. The United States financial system was in a state of classic panic. They were locking up. And Treasury saw about a week ago Thursday that banks were beginning to stop lending to anyone. It didn't matter whether you were a Fortune 500 company or the local auto dealer.

    GIGOT: The kind of classic bank run in the sense of the '30s. We saw people lining up to get their money out. This was with their PCs.

    HENNINGER: And this is the lubricant to the American economy, these kinds of loans. Over the past three weeks, the volume of short-term loans dropped $208 billion. That is unprecedented. What they needed to do was to restore confidence to the financial system so that that lending would restart. And that is essentially what they've done with this bill.

    GIGOT: Steve, do you think this is going to work?

    STEPHEN MOORE, SR. ECONOMICS WRITER, WALL STREET JOURNAL: I sure hope so. There's a lot of money at stake. You've seen the movie "Independence Day" when the alien ships come down and they drop the nuclear bomb on it, if this nuclear bomb doesn't work, what do you do next?

    But I think it's going to put liquidity into the system. I think Dan is right. It probably had to be done. I was a very reluctant supporter of this. The money will start flowing, as I understand it, Paul, some time in the next couple of months. So this is going to happen quickly.

    It will hopefully provide that lubricant to the economy that Dan was talking about so that banks start functioning again. Because without a banking system, the whole economy freezes up.

    JASON RILEY, EDITORIAL BOARD, WALL STREET JOURNAL: Well, I was not a fan of the bailout package. And I think there were good principled reasons to oppose this. You're right, the credit markets were frozen. But one reason they might have been frozen is because Wall Street was holding out for a bailout. And I think one alternative to the bailout might have been to make it clear to Wall Street that the government was not going to come to the rescue.

    GIGOT: Yes, but you make it sound like Wall Street is four guys in a room sitting down and saying, oh, we're not going to — let's see if we can get taxpayer money. This was the whole credit system. And this was global.

    The European banks are in trouble. You had banks in the West Coast, banks all over the place not lending to one of you (ph). It runs on money market funds. This was a much bigger phenomenon than Wall Street.

    And by the way, Wall Street doesn't really even exist anymore as we used to know it, because all the investment banks are either now turning into commercial banks or they're out of business.

    RILEY: Some of the big lenders weren't lending. When that happens in a free market economy and there's profit motive there, other lenders will step in ultimately. It might not happen overnight, and it might be an ugly process, but more lenders will come in, other lenders will come in and fill that void.

    We don't know if this would have ever happened because we have a bailout now. But I think there were principled reasons for not being in favor of the government going out and buying bad loans, which even the experts on Wall Street don't know how to price.