Congress is still considering a bail out plan despite having received a letter of opposition signed by 200 economists.
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.
Another report:
"Ben Bernanke likes to say there are no atheists in fox holes, well General Bernanke just called in from the fox hole and said we want a nuclear strike. It's that radical and we're going 'is it really that bad?'" said John Cochrane, finance professor, University of Chicago.
Prof. Cochrane says despite what you hear from Wall Street and Washington financial armageddon is not upon us.
"Before you go nuclear I think we need to know if there's something really bad out there they're not telling us about," said Cochrane.
Both Sapienza and Cochrane say the Bush administration is hyping the urgency with which Congress needs to act. They believe the markets can hold their own for a week or two or three and give congress time to determine whether such a big bailout is essential.
Jim Rogers, of Rogers Holding, has come out vehemently against the bailout plan. He is outspoken in his criticism of Bernanke and has been for months. There are numerous clips available on YouTube that document his views.
"It's welfare for the rich, but not for you or me....The more bandaids you put on [Wall Street], the worse it's going to be down the line. "
His numerous assertions that this is just a bail out for Bernanke's friends causes me to wonder: how many members of Congress also stand to benefit? We need to know the answer to that. It should be made public right alongside their decision on how to handle this emergency. There should be no conflict of interest in protecting taxpayers.
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.
Another report:
"Ben Bernanke likes to say there are no atheists in fox holes, well General Bernanke just called in from the fox hole and said we want a nuclear strike. It's that radical and we're going 'is it really that bad?'" said John Cochrane, finance professor, University of Chicago.
Prof. Cochrane says despite what you hear from Wall Street and Washington financial armageddon is not upon us.
"Before you go nuclear I think we need to know if there's something really bad out there they're not telling us about," said Cochrane.
Both Sapienza and Cochrane say the Bush administration is hyping the urgency with which Congress needs to act. They believe the markets can hold their own for a week or two or three and give congress time to determine whether such a big bailout is essential.
Jim Rogers, of Rogers Holding, has come out vehemently against the bailout plan. He is outspoken in his criticism of Bernanke and has been for months. There are numerous clips available on YouTube that document his views.
"It's welfare for the rich, but not for you or me....The more bandaids you put on [Wall Street], the worse it's going to be down the line. "
His numerous assertions that this is just a bail out for Bernanke's friends causes me to wonder: how many members of Congress also stand to benefit? We need to know the answer to that. It should be made public right alongside their decision on how to handle this emergency. There should be no conflict of interest in protecting taxpayers.
posted by Mary | 12:14 PM
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