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Old 09-21-2008, 05:01 PM   #1
Zarathustra
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Default Economists becoming skeptical of bailout

http://news.yahoo.com/s/politico/200...politico/13689


Economists becoming skeptical of bailout

Avi Zenilman Sun Sep 21, 8:58 AM ET

Many of the same economists and opinion-makers who'd provided a bipartisan sheen of consensus to Treasury Secretary Henry Paulson's previous moves have quickly begun casting doubts on the wisdom of a policy that would allow Treasury to purchase without oversight hundreds of billions of dollars of difficult-to-price assets from financial institutions.
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Under the proposal, Paulson would not have to report to Congress until December, and the only safeguard for taxpayers was a provision that the “Secretary shall take into consideration means for — (1) providing stability or preventing disruption to the financial markets or banking system; and (2) protecting the taxpayer.”

Skepticism toward the plan reflected more than the predictable desires of the left to spread the wealth to Main Street or of the right to reject government bailouts, although those sentiments were also expressed.

Paul Krugman, the Princeton University economist and liberal columnist for The New York Times who had until now been cautiously supportive of Paulson's and Federal Reserve Chairman Ben Bernanke’s efforts to prop up the system, wrote that the new plan would be a taxpayer rip-off. “I hate to say this, but looking at the plan as leaked, I have to say no deal,” he wrote on his blog at 4:46 p.m. Saturday. “Not unless Treasury explains, very clearly, why this is supposed to work, other than through having taxpayers pay premium prices for lousy assets.”

President Bush is “asking for a huge amount of power,” said Nouriel Roubini, an economist at New York University who was among the first to predict the crisis. “He's saying, ‘Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy.” (Roubini told the New York Times that despite these concerns, he also thought the plan could help stave off a recession.)

Yves Smith, a longtime banker and contributor to the influential finance blog Naked Capitalism, published an angry post there titled, "Why You Should Hate The Treasury Bailout Proposal":

"Given that continuing to buy U.S. assets will come under increasingly harsh scrutiny overseas, the U.S. needs to bend over backwards to devise a plan that at least looks credible in terms of directing the funds that come from taxpayers and lenders to their highest and best uses and implementing reforms that will restore active and prudent oversight of financial firms," she wrote. "The administration's demand for a free pass, even if Congress unwisely goes along, is likely to backfire with our foreign creditors."

Gregory Mankiw, a professor at Harvard University and a former chairman of Bush's Council of Economic Advisers who was the economic guru for Mitt Romney's campaign, favorably linked to Smith's post under the headline "A Blank Check" and approvingly quoted a correspondent who wrote, "Has more money ever been given with fewer restrictions on how it is used? Ever?"

Sebastian Mallaby, the center-right economic columnist for The Washington Post and scholar of the modern financial system, was equally dubious. “The plan is being marketed under false pretenses," he wrote in his Sunday column, rejecting comparisons of the plan to the Resolution Trust Corporation, which the government formed in response to the savings and loan crisis to purchase and sell off the bad loans made by bankrupted thrifts.

“The administration proposes to buy up bad loans before the lenders go bust,” Mallaby noted, keeping the banks alive but doing little to solve the problem infecting the markets. “Bad loans are weighing down the financial system precisely because private-sector experts can't determine their worth. The government would have no better handle on the problem.”

University of Chicago Graduate School of Business economist Luigi Zingales, in a short essay titled "Why Paulson Is Wrong" that was cited by Mallaby and a raft of other economics blogs across the ideological spectrum, wrote: "For somebody like me who believes strongly in the free market system, the most serious risk of the current situation is that the interest of a few financiers will undermine the fundamental workings of the capitalist system. The time has come to save capitalism from the capitalists."

Justin Fox, Time magazine's top financial writer and columnist, also worried about the lack of an upside for the taxpayer. "What I still can't figure out is how Treasury hopes to structure the bailout so there's at least a chance of getting a fair return on that risk-taking," he wrote on his blog.

"How on earth will these things be priced?" Portfolio's Felix Salmon asked about the bad debt Paulson plans to purchase. He also pointed out that Treasury would need to stock its office with bond-trading professionals. "All we know so far is that it's going to be set up as a reverse auction, but that raises more questions than it answers."

One notable proponent of the plan was The Financial Times' unsigned Lex column, which acknowledged the lack of oversight but mostly praised the plan:

"This bailout is necessary and the bill should be pushed through quickly. … Nor is the package necessarily a disaster for the taxpayer or the U.S. dollar. If the Treasury buys assets well, and confidence is restored, there is [a] chance that Mr. Paulson could win fund manager of the year."
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Old 09-21-2008, 05:10 PM   #2
Love/Light 13
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Post Re: Economists becoming skeptical of bailout

Z-

Just caught this post as I am about to run out the door. I have focused my thoughts and concentration on the hope that this bailout will fail in Congress. These banking institutions must pay the price for unfair business practices and sub-prime lending practices. Is Secretary Paulson really trying to convince us that bailing out the culprits, without helping the victims, those homeowners currently dealing with the foreclosure of our home, is a necessary step in the long-term recovery of our economy?

Happy Socialism!!!

***********************

may WISDOM guide COMPASSION

"out of MANY, we are ONE"
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Old 09-21-2008, 05:35 PM   #3
Zarathustra
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Default Re: Economists becoming skeptical of bailout

Quote:
Originally Posted by Love/Light 13 View Post
Z-

Just caught this post as I am about to run out the door. I have focused my thoughts and concentration on the hope that this bailout will fail in Congress. These banking institutions must pay the price for unfair business practices and sub-prime lending practices. Is Secretary Paulson really trying to convince us that bailing out the culprits, without helping the victims, those homeowners currently dealing with the foreclosure of our home, is a necessary step in the long-term recovery of our economy?

Happy Socialism!!!

***********************

may WISDOM guide COMPASSION

"out of MANY, we are ONE"
Amen L
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Old 09-22-2008, 01:53 AM   #4
JSErwine
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Default Re: Economists becoming skeptical of bailout

On a further note, not only do the crooked financial institutions need punishing but the people living waaaaay beyound their means should feal the sting as well.

Greed and envy deserve their just rewards.

Letting all these institutions fail will no doubt hurt for all of us. But I for one am not about to throw the constitution that so many of our forefathers suffered and died for out the door.

Bailing everything out just shows the world our lack of courage and unwillingness to stand by our convictions.
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Old 09-22-2008, 02:05 AM   #5
Zarathustra
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Default Re: Economists becoming skeptical of bailout

Quote:
Originally Posted by JSErwine View Post
On a further note, not only do the crooked financial institutions need punishing but the people living waaaaay beyound their means should feal the sting as well.

Greed and envy deserve their just rewards.

Letting all these institutions fail will no doubt hurt for all of us. But I for one am not about to throw the constitution that so many of our forefathers suffered and died for out the door.

Bailing everything out just shows the world our lack of courage and unwillingness to stand by our convictions.
Don't worry J, the people of America are going to feel the sting, a sting much worse than would've felt had these institutions been allowed to fail. The Federal Government is borrowing AT LEAST a trillion dollars from the FED in two weeks, which has to repaid by the American people, PLUS INTEREST! It doesn't take a financial genius to understand the immense inflationary pressure that will put on an economy with a total GDP of 14 trillion.

Bottom line, every American citizen has gotten intentionally, criminally, traitorously SCREWED! To say that these measures are for the protection of the American citizens is NOT misguided, it is an out and out lie! This is about the domestic and international banking cabals, in league with the politicians in Washington, STEALING from the American people. They may as well bust down every front door in the U.S. and take what they want, it would be no less criminal.

As I have said before, the Neuremburg trials would be WAY to kind for these vile traitors!

Z
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