McClatchy News: Is the bailout needed? Many economists say it's not

[chill_wind]

Is the bailout needed? Many economists say it's not

By Kevin G. Hall | McClatchy Newspapers
September 25, 2008

WASHINGTON — A funny thing happened in the drafting of the largest-ever U.S. government intervention in the financial system. Lawmakers of all stripes mostly fell in line, but many of the nation's brightest economic minds are warning that the Wall Street bailout's a dangerous rush job.

President Bush and his Treasury secretary, former Goldman Sachs chief executive Henry Paulson, have warned of imminent economic collapse and another Great Depression if their rescue plan isn't passed immediately.

Is that true?

"It's more hype than real risk," said James K. Galbraith, a University of Texas economist and son of the late economic historian John Kenneth Galbraith. "A nasty recession is possible, but the bailout will not cure that. So it's mainly relevant to the financial industry."

The Paulson plan will get some bad assets off the balance sheets of troubled Wall Street institutions and commercial banks. That may help thaw the lending freeze.

But it wouldn't reduce the crush of homes in or near foreclosure, said Simon Johnson, a professor at the Massachusetts Institute of Technology. That's a problem that will surely grow worse if the U.S. economy enters recession, leading to greater job losses, which feed a vicious downward spiral of even more foreclosures and defaults on car loans and credit-card debt.

Americans are spooked by talk that financial Armageddon awaits.

The global financial system nearly melted down last week when investors pulled out en masse from money market funds and the short-term debt markets that help corporate America fund its day-to-day needs.

These traditionally have been viewed as safe investments for ordinary Americans, so the flight from them struck fear in the hearts of policymakers.

Few economists, including Galbraith, are willing to discount completely the chance of a financial collapse, given the turmoil in credit markets and banking.

"My sense is it will delay a disaster, given that you only have three months left in this administration. But it will not cure the problem in the (financial) industry or prevent the shakeout and downsizing of the industry," Galbraith said.

more: http://www.mcclatchydc.com/homepage/story/53107.html

[David Dunham]

1. What a--holes. We cannot afford a deep recession.

[Democrats_win]

3. That's right. We can't have a recession: too much debt.

We need an alternative that insures no recession.

[ixion]

5. too late.. the housing bubble assured that there will be one

until housing prices have corrected, and the ancillary markets have followed suit, things are going to be rough.

[ixion]

4. that's just his point... we get the recession either way

but that this will make it worse, because it won't actually solve the problem, but aggravate it.

[mmonk]

2. The problem is we don't have enough

to stop any run on banks should there be one.

[Dover]

6. And did ya notice they quietly slipped in GM's $25 Billion bailout this week, while all eyes were

on this bigger bailout?

They called it "a loan". How many loans is that for GM over it's lifetime. It's like a cat with
nine lives and therefore no incentive to worry about risk or poor management.

[mmonk]

7. Yes. It has no business being included.

[BrklynLiberal]

8. Here is a three page list of economists who are against this bailout..

http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm

[chill_wind]

10. Thank you for that! Bookmarking! n/t

[alfredo]

9. Read "The Shock Doctrine" by Naomi Klein. They are trying to shock us

into accepting their draconian economic reforms.

[chill_wind]

11. And the Paulson Bailout won't be the end. Congress is in over its head

if it only listens to the pro Paulson types.

Bailout plan won't be end of Wall Street bailouts
September 23, 2008

BY NOMI PRINS | Nomi Prins, a former investment banker at Goldman Sachs, Bear Stearns and Lehman Brothers, is a senior fellow at the public policy organization Demos and the author of "Other People's Money: The Corpo
September 23, 2008

(...)


To steer this ship, Congress has to bone up on finance - if members don't know what CDOs (collateralized debt obligations) and credit derivatives really are, they can't understand the risk they have incurred on behalf of American taxpayers, and they'll be ill-prepared to evaluate Paulson's plan. And Congress must then regulate credit derivatives and the banking industry.

The goliath Bank of America-Merrill Lynch will take months to decipher. Goldman and Morgan's buying up smaller banking players - which they will - will add to the murkiness. None of this stabilizes the system. Instead, it sets it up as a bigger problem to solve later.

If our representatives in Washington are serious about fixing the problems that Wall Street has caused, they will shoot the roots of deregulation, not just the messenger of subprime-lending malpractice, or the toxic waste manufactured by Wall Street.

Congress also shouldn't let Paulson anywhere near the management of the buyout fund - and frankly, shouldn't feel compelled to approve a $700 billion bailout without strong regulatory protections for American citizens. But that requires a deeper understanding of the complicated mortgage and credit markets than Congress seems to have.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4090262&mesg_id=4090262

see also the Bloomberg.com thread-- http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4090213

[ProSense]

12. These economist are opposed to Bush/Paulson's plan, not a solution

Doubting the financial Armageddon scenario, Yardeni said another measure that could have the same effect as the $700 billion rescue plan is simply to change accounting rules for bad assets — mostly bonds with mortgages as their collateral.

Right now, banks and others with this toxic debt by law must write down losses every quarter. They are forced to put a present-day value on these assets. Yardeni thinks suspending this rule could do the job without taxpayer money.

"There are quite a few of us who think that could have stabilized the situation quite effectively," he said, adding, "I think it (the bailout) was rushed, and certainly we didn't give other reasonable, cheaper alternatives a chance. But at this point it is what it is, and we all have to pray that it works."

They are not saying that something doesn't need be done.

[mmonk]

13. Yes, something needs to be done.

It needs at its core a restructuring.

[chill_wind]

14. Which is something that neither party is going to get done

in this mushroom cloud crisis bill that Bush is tying to stampede thru. Unless both parties demand the time it deserves, which requires comprehensive hearings, tons of testimony, expertise from some of these economists, a demand to see the books and a commitment to seize reform and stiff regulation starting with this crisis which presents this perfect opportunity. Which isn't going to happen. What we'll get instead is a bad rush job, a bipartisan solution to saddle taxpayers with another massive amount of debt, and to kick the can down the road some more, with both sides playing election year politics.

[mmonk]

16. What nees to be done is a way to keep credit from grinding to a halt.

Maybe a fund created that banks can borrow from at a reasonable rate.

[DCKit]

23. So they borrow to whatever limit the Republics would allow....

then declare bankruptcy. It's enabling and rewarding their bad behavior and no different than the Paulson handout.

We don't need IOUs, we need ownership.

[OakCliffDem]

15. Kick

[chill_wind]

17. thanx. n/t

[redqueen]

18. WHICH BAILOUT? Jesus... WaMu collapses last night... why did these economists wait till AFTER

the Dems started forcing an equity stake onto the table to say it wasn't needed?

I smell a rat.

[chill_wind]

19. The Paulson Poison. See the letter (linked upthead.) n/t

[redqueen]

21. That's already dead in the water. The one on the table now includes equity,

oversight, and limits on executive pay.

And today I'm calling and demanding that the equity be drained from shares before any bailout can happen.

[Romulox]

20. But DU blowhards INSIST that without it there will be "TERRA, TERRA, TERRA!"

Ooops, I meant "Depression, Depression, Depression!" My mistake. :rofl:

[chill_wind]

22. Open the books. NOW!

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4096101