Obama campaign - WHY is the bailout needed? We like Obama's approach to it, but still don't believe

[peacebird]

in itself is needed. WHY is it needed?

Will it actually help the economy? Many economists say it won't.

I believe that if the bailout is passed and Obama does not explain WHY it is absolutely needed he will lose the election.

The people of America do not want this bailout. No one has told us why it is needed. Oh yeah - shrub whined and stamped his feet, but who believes him anyhow?

[GarbagemanLB]

1. Who are these 'many economists'? Most I've heard have said the exact opposite. Something needs

to be done to deal with the credit crisis on wall street or it will affect basically everyone down the line. There is a reason basically all the people in congress support a bailout (albeit with different opinions on how to finance it) - they've been briefed on just how serious the situation is.

[knowledgeispwr]

4. I think a lot of people have no idea how important credit is in our economy

It's easy to go with a pseudo-populist "no blank check for the fat cats" but a real credit crisis will affect everyone. People will learn what "trickle down" really means.

[peacebird]

6. YOOHOO - here are the approximately 200 economists I mentioned who are against Paulsons Plan

To the Speaker of the House of Representatives and the President pro tempore of the Senate:

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.


Signed (updated at 9/25/2008 8:30AM CT)

Acemoglu Daron (Massachussets Institute of Technology)
Adler Michael (Columbia University)
Admati Anat R. (Stanford University)
Alexis Marcus (Northwestern University)
Alvarez Fernando (University of Chicago)
Andersen Torben (Northwestern University)
Baliga Sandeep (Northwestern University)
Banerjee Abhijit V. (Massachussets Institute of Technology)
Barankay Iwan (University of Pennsylvania)
Barry Brian (University of Chicago)
Bartkus James R. (Xavier University of Louisiana)
Becker Charles M. (Duke University)
Becker Robert A. (Indiana University)
Beim David (Columbia University)
Berk Jonathan (Stanford University)
Bisin Alberto (New York University)
Bittlingmayer George (University of Kansas)
Boldrin Michele (Washington University)
Brooks Taggert J. (University of Wisconsin)
Brynjolfsson Erik (Massachusetts Institute of Technology)
Buera Francisco J. (UCLA)
Camp Mary Elizabeth (Indiana University)
Carmel Jonathan (University of Michigan)
Carroll Christopher (Johns Hopkins University)
Cassar Gavin (University of Pennsylvania)
Chaney Thomas (University of Chicago)
Chari Varadarajan V. (University of Minnesota)
Chauvin Keith W. (University of Kansas)
Chintagunta Pradeep K. (University of Chicago)
Christiano Lawrence J. (Northwestern University)
Cochrane John (University of Chicago)
Coleman John (Duke University)
Constantinides George M. (University of Chicago)
Crain Robert (UC Berkeley)
Culp Christopher (University of Chicago)
Da Zhi (University of Notre Dame)
Davis Morris (University of Wisconsin)
De Marzo Peter (Stanford University)
Dubé Jean-Pierre H. (University of Chicago)
Edlin Aaron (UC Berkeley)
Eichenbaum Martin (Northwestern University)
Ely Jeffrey (Northwestern University)
Eraslan Hülya K. K.(Johns Hopkins University)
Faulhaber Gerald (University of Pennsylvania)
Feldmann Sven (University of Melbourne)
Fernandez-Villaverde Jesus (University of Pennsylvania)
Fohlin Caroline (Johns Hopkins University)
Fox Jeremy T. (University of Chicago)
Frank Murray Z.(University of Minnesota)
Frenzen Jonathan (University of Chicago)
Fuchs William (University of Chicago)
Fudenberg Drew (Harvard University)
Gabaix Xavier (New York University)
Gao Paul (Notre Dame University)
Garicano Luis (University of Chicago)
Gerakos Joseph J. (University of Chicago)
Gibbs Michael (University of Chicago)
Glomm Gerhard (Indiana University)
Goettler Ron (University of Chicago)
Goldin Claudia (Harvard University)
Gordon Robert J. (Northwestern University)
Greenstone Michael (Massachusetts Institute of Technology)
Guadalupe Maria (Columbia University)
Guerrieri Veronica (University of Chicago)
Hagerty Kathleen (Northwestern University)
Hamada Robert S. (University of Chicago)
Hansen Lars (University of Chicago)
Harris Milton (University of Chicago)
Hart Oliver (Harvard University)
Hazlett Thomas W. (George Mason University)
Heaton John (University of Chicago)
Heckman James (University of Chicago - Nobel Laureate)
Henderson David R. (Hoover Institution)
Henisz, Witold (University of Pennsylvania)
Hertzberg Andrew (Columbia University)
Hite Gailen (Columbia University)
Hitsch Günter J. (University of Chicago)
Hodrick Robert J. (Columbia University)
Hopenhayn Hugo (UCLA)
Hurst Erik (University of Chicago)
Imrohoroglu Ayse (University of Southern California)
Isakson Hans (University of Northern Iowa)
Israel Ronen (London Business School)
Jaffee Dwight M. (UC Berkeley)
Jagannathan Ravi (Northwestern University)
Jenter Dirk (Stanford University)
Jones Charles M. (Columbia Business School)
Kaboski Joseph P. (Ohio State University)
Kahn Matthew (UCLA)
Kaplan Ethan (Stockholm University)
Karolyi, Andrew (Ohio State University)
Kashyap Anil (University of Chicago)
Keim Donald B (University of Pennsylvania)
Ketkar Suhas L (Vanderbilt University)
Kiesling Lynne (Northwestern University)
Klenow Pete (Stanford University)
Koch Paul (University of Kansas)
Kocherlakota Narayana (University of Minnesota)
Koijen Ralph S.J. (University of Chicago)
Kondo Jiro (Northwestern University)
Korteweg Arthur (Stanford University)
Kortum Samuel (University of Chicago)
Krueger Dirk (University of Pennsylvania)
Ledesma Patricia (Northwestern University)
Lee Lung-fei (Ohio State University)
Leeper Eric M. (Indiana University)
Leuz Christian (University of Chicago)
Levine David I.(UC Berkeley)
Levine David K.(Washington University)
Levy David M. (George Mason University)
Linnainmaa Juhani (University of Chicago)
Lott John R. Jr. (University of Maryland)
Lucas Robert (University of Chicago - Nobel Laureate)
Luttmer Erzo G.J. (University of Minnesota)
Manski Charles F. (Northwestern University)
Martin Ian (Stanford University)
Mayer Christopher (Columbia University)
Mazzeo Michael (Northwestern University)
McDonald Robert (Northwestern University)
Meadow Scott F. (University of Chicago)
Mehra Rajnish (UC Santa Barbara)
Mian Atif (University of Chicago)
Middlebrook Art (University of Chicago)
Miguel Edward (UC Berkeley)
Miravete Eugenio J. (University of Texas at Austin)
Miron Jeffrey (Harvard University)
Moretti Enrico (UC Berkeley)
Moriguchi Chiaki (Northwestern University)
Moro Andrea (Vanderbilt University)
Morse Adair (University of Chicago)
Mortensen Dale T. (Northwestern University)
Mortimer Julie Holland (Harvard University)
Muralidharan Karthik (UC San Diego)
Nanda Dhananjay (University of Miami)
Nevo Aviv (Northwestern University)
Ohanian Lee (UCLA)
Pagliari Joseph (University of Chicago)
Papanikolaou Dimitris (Northwestern University)
Parker Jonathan (Northwestern University)
Paul Evans (Ohio State University)
Pejovich Svetozar (Steve) (Texas A&M University)
Peltzman Sam (University of Chicago)
Perri Fabrizio (University of Minnesota)
Phelan Christopher (University of Minnesota)
Piazzesi Monika (Stanford University)
Piskorski Tomasz (Columbia University)
Rampini Adriano (Duke University)
Reagan Patricia (Ohio State University)
Reich Michael (UC Berkeley)
Reuben Ernesto (Northwestern University)
Roberts Michael (University of Pennsylvania)
Robinson David (Duke University)
Rogers Michele (Northwestern University)
Rotella Elyce (Indiana University)
Ruud Paul (Vassar College)
Safford Sean (University of Chicago)
Sandbu Martin E. (University of Pennsylvania)
Sapienza Paola (Northwestern University)
Savor Pavel (University of Pennsylvania)
Scharfstein David (Harvard University)
Seim Katja (University of Pennsylvania)
Seru Amit (University of Chicago)
Shang-Jin Wei (Columbia University)
Shimer Robert (University of Chicago)
Shore Stephen H. (Johns Hopkins University)
Siegel Ron (Northwestern University)
Smith David C. (University of Virginia)
Smith Vernon L.(Chapman University- Nobel Laureate)
Sorensen Morten (Columbia University)
Spiegel Matthew (Yale University)
Stevenson Betsey (University of Pennsylvania)
Stokey Nancy (University of Chicago)
Strahan Philip (Boston College)
Strebulaev Ilya (Stanford University)
Sufi Amir (University of Chicago)
Tabarrok Alex (George Mason University)
Taylor Alan M. (UC Davis)
Thompson Tim (Northwestern University)
Tschoegl Adrian E. (University of Pennsylvania)
Uhlig Harald (University of Chicago)
Ulrich, Maxim (Columbia University)
Van Buskirk Andrew (University of Chicago)
Veronesi Pietro (University of Chicago)
Vissing-Jorgensen Annette (Northwestern University)
Wacziarg Romain (UCLA)
Weill Pierre-Olivier (UCLA)
Williamson Samuel H. (Miami University)
Witte Mark (Northwestern University)
Wolfers Justin (University of Pennsylvania)
Woutersen Tiemen (Johns Hopkins University)
Zingales Luigi (University of Chicago)
Zitzewitz Eric (Dartmouth College)

[MarjorieG]

9. I don't know these economists. They can be ivory-towered, conservative (who got us in this mess)...

I'd go with Reich, who was never on board with some of the de-regulation, a populist at heart, but knowing of markets and reality. Don't always trust Krugman, but not an ideologue.

(sp)

[nyc 4 Biden]

20. I've been listening to Bloomberg radio...

...24/7 since lehman went under and all the economists they have on say the Paulson Plan and congress's idea's are woefully insufficient. They say the worst part is that congress is not consulting independent economists.

[mzmolly]

7. Krugmann and Reich

agree that something needs to be done. Though, I can't say they are on board for any particular solution.

[knowledgeispwr]

2. I think grantcart gives a good analogy and explanation

in this thread. I'm not sure if the final plan that Congress comes up with will be what is needed, but it looks like something needs to be done. We need credit for our economy to run.

[wilt the stilt]

3. there is a valid reason for the bailout plan

and why it has to come from government. The capitalist system is based on liquidity and trust. If everyone becomes insolvent then all capitalism falters. The private market can't guarantee it because they can default. The government has to guarantee it because it will not become insolvent. That is why T-Bills are always as good as gold. If worse comes to worse a government can print money. It will not go insolvent. That is why the government has to bail out the banking system. The financial system is the core of capitalism

[droidamus2]

13. Wait a minute

Isn't 'just printing money' going to cause devaluation of the dollar and rampant inflation? Doesn't sound like a great solution to me. So then I end up with a house worth nothing and cash worth even less. Of course I'm no economist so what do I know.

[wilt the stilt]

19. tys you devalue the dollar

that is true but read the column further up in the Washington Post on why McCain hates Obama and they go into why it can't be done by private enterprise. The government has to be the one that backs up the financial group. That is why there is a FDIC.

[ProgressiveEconomist]

5. A picture is worth 10,000 words. Look at this CHART, then tell me there's no PROBLEM

See the explanatory thread archived at http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=132x7192029 , especially Post #29.

Are the "economists" you speak of applied financial economists, or economic historians, theoreticians, and experts in other applied fields?

[peacebird]

8. please see my reply above with their names....

[ProgressiveEconomist]

10. Try to look them up in the American Finace Association's directory at LINK

http://www.cob.ohio-state.edu/fin/findir .

You'll get very few "hits". Some of those names are documentel frauds, such as John Lott, author of "More Guns, Less Crime", and a paper that says wealthier criminals should get shorter sentences than poorer criminals, because their time is more valuable!

[peacebird]

12. wow. Thanks! But if I have such doubts (in part because *shrub* wants this) then Obama NEEDS

to explain WHY we need this to all Americans.

*shrub* spoke but no one believed him.

Obama needs to get out and tell us WHY the Dems are pushing this extremely unpopular legislation through. Or the Repubs will win. Because people HATE this bailout.

[ProgressiveEconomist]

14. Obama's no fool, and Congressional Democrats whose seats are in play this year are

no fools. They CANNOT geo out and sell the bailout until it has been passed with McCain's vote and with substantial Republican support in both the House and the Senate.

If they did, the McCain Campaign would have a new theme: Democrats=Bush and McCain=Maverick on Wall Street giveaways.

[PVnRT]

16. They mentioned one on NPR - from the University of Chicago

That tells me volumes about the kinds of economists on that list.

[ProgressiveEconomist]

18. The only name on that list that I recognize as a real expert on this precise issue (recapitalization...

(recapitalization of financial institutions as a possible public good) is Anil K Kashyap.

He well may be a right-wing ideologue, since he teaches finance and banking at University of Chicago.

Click through his homepage links at http://www.cob.ohio-state.edu/fin/findir/individual.html?indivID=3022 and you may at least get a bibliography of published experts on this and related issues.

[droidamus2]

11. Framing

I still think it is bad for the Democrats to buy into the framing on this issue done by Bush, Paulson et al. Democrats have bought into the idea first that there has to be a bailout, second that it has to be a government bailout and lastly that it has to be done fairly quickly or there will be dire consequences so they are just trying to add on some stuff to make it more palatable. It wouldn't hurt the Democrats to kick Paulson and the Bush people out of the room, call some experts, preferably not directly from Wall Street, from academia and maybe around the world and examine what is the best approach or at least what the alternatives are. If it turns out Bushes isn't the best then they can present their own solution. Again, this looks like 'big government' Democrats siding with Bush against the free market Republicans. It basically allows the Republican Congresspeople and Senators to run against Bush.
Here's how the Democrats get the time to examine what really should be done. Blame McCain and the Republicans in the House for sabotaging Bushes plan. Then claim they don't have the votes to pass it and they are going back to look and see if there is a better way to do it that everybody can get behind and that could include just letting the market do what it is going to do and living with the consequences. Come up with a good solution, sell it big time to the American people.

[Arkana]

15. We've got McCain on record saying that something needed to be done.

So he can't beat us over the head with it.

[Laura PourMeADrink]

17. I think the problem is that you can't say, "more and more banks

will fail and people will withdraw their money and there will be runs on all the banks."

This could be a self-fullfilling prophecy,

But I do think he has to get very, very angry about it. Last night he had a perfect
chance - when he was pressed for an answer about what would change because of the
bailout. He could have said he was furious about what the administration and
the congress who gave them a blank check did (i.e. McCain). Now, they have put us in
an impossible situation. The people will be hurt very badly if nothing is
done. And if it's done we will have to cut back on doing things that will help
everyone.