economists on the bailout

[barbtries]

Source: NY Times - Freakonomics

Here’s the letter, which was — just minutes ago — sent to Congress:

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.

Read more: http://freakonomics.blogs.nytimes.com/2008/09/23/economists-on-the-bailout/

---

more at link

[searchingforlight]

1. This makes sense to me. For the first time I am hearing some sanity.

I actually think the little guy will be hurt the least.

[Clear Blue Sky]

2. The doofusses that either didn't see the looming problems or

helped us get into this mess are the ones to fix it? Doesn't make sense to me.

[Warpy]

3. I was with them until I got to this part:

"For all their recent troubles, America’s dynamic and innovative private-capital markets have brought the nation unparalleled prosperity."

Uh, fellas? This stuff only goosed the paper profits of institutions and the extremely wealthy. It did nothing for 95% of America except to make the institutions they depend on to handle their everyday transactions unstable.

That dynamic and innovative system was a Ponzi scheme. It needs a fundamental overhaul.

[Jacobin]

4. some sanity in the debate is welcomed