The policy headache doesn't end with devaluation: Domestic politics has prevented Brazil's government from implementing the austerity package demanded by the IMF. "That leaves the IMF to decide whether to withhold aid," says Baumohl. "Without IMF help, the situation would deteriorate further, which will probably force them to renegotiate the package." Even then, failure to manage the long-anticipated Brazil crisis makes global financial contagion start to look like a disaster-movie plotline. And Robert Rubin is no Bruce Willis.
The Dow took another pounding from Brazil Thursday, but the political impact of the devaluation crisis may be even greater. "U.S. equities will take a short-term hit, but the bigger blow has been to the White House economic team," says TIME senior business writer Bernard Baumohl. "This was a failure of the U.S. plan to ward off the crisis by giving Brazil a preemptive $41 billion IMF bailout." That not only leaves egg on the faces of Messrs. Rubin and Summers; it removes investors' confidence that there's a firm hand on the global financial wheel.