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

[babylonsister]

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

By Kevin G. Hall | McClatchy Newspapers


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.

more...

http://www.mcclatchydc.com/227/story/53107.html

[secondwind]

1. So, what you are saying is that Shelby is RIGHT? That the "five pages of economists' concerns"

about the bailout is TRUE?


How does that affect our candidate, I wonder...............

[tekisui]

5. I think there will not be a real effect on Obama,

unless the bill is hammered out, and a vote cast. And, likely it will have such broad support, his vote won't be relevant.

[riverdeep]

10. It will affect Obama directly, don't kid yourself.

He needs to back off from this plan. He's taken some great tactical steps in recognizing that there is a problem with the economy, back when just last Monday the clueless and flailing McCain said it was sound, he also laid out his concerns for the middle class effectively. Most smartly, until yesterday, he stayed far away from the actual process and specifics. This means that when he bails, it still won't be seen as flip flopping. Although, even if it is, that's far less of a political hit then being tied around the neck with wanting to take a trillion dollars of taxpayer money as a first resort.

As far as Shelby being right, I don't know. He's right to be concerned that this is the only possible solution, but without hearings and debate, what we've got is a plan thought up by people with a long history of wrecking everything they've ever touched.

[avaistheone1]

42. It will. Bernie Sanders just said Obama will not be able to carry out his programs if we fund all

these bailouts in the way they have been proposed.

[NMDemDist2]

2. a year or two ago we were having a lot of discussions in the Economy forum

about hard landings vs soft landings of the Economy.

the absolute BEST they can do with a bailout is soften the landing. It's too late for a soft landing now, it just a matter of how hard it will crash.

All those discussions were the reason I'm sitting in a paid for home with no debt today. I got out while the getting was good......

[lostnfound]

3. The $700 B was a made-up number according to a high-level Treasury staffer

Rachel Maddow mentioned last night -- that the Treasury staffer had said they had just wanted to pick a 'really big number'.

This is another hoax, people want payoff for gambling bets and the companies that accepted the bets can't afford them. Probably no one can.

[pnutbutr]

4. uh?

He's an economist? Then he would know that the US monetary system runs off credit, loans and investment and that by not thawing the lending freeze our economy will go nowhere but down. If we do nothing the job losses and foreclosures will be even worse than he describes.

[MadHound]

6. Uh, perhaps as an economist he realized that the cure is worse than the problem

With 700 billion plus of liquidity injected into the system, the dollar will tank. Also, with adding 700 billion plus to our debt load, more than likely our US Treasury bonds are going to be downgraded, leaving the government and this country without a means to fund jack and/or shit. A recession, even a depression is preferable than the collapse of our government, economy and country that is in the offing if we pursue the bailout. We've survived depressions before. But not having an open, secure line of credit, combined with high, even hyper inflation, that's a combination that will make the Great Depression look like the Roaring Twenties.

My wife is an economics professor, I know several economists, they are all scared shitless of this bailout and are praying and hoping that it doesn't go through. I tend to trust people who are actual experts in the field rather than posturing politicians trying to stampede us into a really bad, bad bailout.

[pnutbutr]

9. that's what we are looking at

The collapse of our economy. The fiat money system relies on lending and credit. If we leave lending stopped we will see a significant drop in confidence and the economy will fall like a stone. The bailout is to boost confidence and restart lending in order to prevent the collapse, hyperinflation and depression.

[MadHound]

15. Again

You add this sort of liquidity to the system, you're going to devalue the dollar and lead to inflation. You take on this much debt load, and the US Treasury Bonds are going to be downgraded. Do you truly understand what sort of economic extinction level event that would bring about?

The cure in this case, the bailout, is worse that the problem. We can survive a great depression, we can't survive our government and economy collapsing.

[pnutbutr]

21. The dollar value

is going to go down no matter what we do. If we do nothing, banks will have no money to lend, no credit to offer and investments will stop because there will be no confidence in the market. These things are the cornerstone of fiat money. Without them the economy will cease to work and fall. By buying the bad loans and providing money to the banks to resume lending we prevent that fall.

[MadHound]

24. That could very well be true

But the crux of my argument concerns the downgrading of the US Treasury Bonds. Do you realize what sort of damage that will do to our government, economy and country? How are we going to get money to run our government if we can't sell Treasury Bonds? Please don't say the taxpayer, because all of that money is going to be going into servicing our debt.

Having our Treasury bonds downgraded is an extinction level economic event, one that is much, much worse than a depression. I've talked with many economists on this one, and they're all scared shitless that this bailout will actually go through, thus crippling our economy and country.

[redqueen]

20. They're scared shitless of ANY bailout or the one Paulson proposed or what?

Do they think letting the banks fail is a better option? Really?

[ProfessorGAC]

23. No, To Both Questions

Serious economists are not saying they're opposed to any solution. They, like me, are opposed to knee-jerk solutions to a situation that took 20+ years to develop. Better to ride out the storm temporarily and do something that addresses the root causes, and the current plans either don't do it at all (Paulson) or don't do enough to correct the real errors in the system (the Dem plan.)
The Professor

[redqueen]

25. What needs to be added to the Dem plan?

Do you think that Sweden's handling of their banking crisis was a success or a failure?

[ProfessorGAC]

32. Mostly A Succcess

As i said in the PM to you, i think the dem plan needs to address the lack of oversight of the system and make the overall system of transfer more transparent to borrower, investor, regulators, and the public.

It also needs to address the upward pressure on lending levels by limiting debt to income ratio, encouraging people to borrow only what they can afford and not entice them into borrowing more for a bigger home that they can't afford upon ARM repricing.

The mortgage firms need to be more tightly regulated to maintain a higher percentage of their original mortgages, so they can't bundle away the risk on stupid loans.

We won't actually fix the problem with a one time bailout, even with the equity provisions, which of course is a nice start toward transparency.

Sweeden's problem was not quite the same, since the issues that precipitated their crisis were different. Different causes, different solutions.
GAC

[redqueen]

35. This bill does address the lack of oversight...

can we not push for the things that are missing in this bill, and push for whatever's missing in the new administration, rather than allowing more enormous banks to consoldiate their power?

[ProfessorGAC]

22. And We Have A Winner

You are correct, Hound. The monetary system is not as fragile as we are being led to believe. (At least those of us who don't actually study this stuff.)

If the "cure" doesn't correct the systemic issues that led to it, it is highly likely that it will, at best, accomplish nothing, and at worst, make things exponentially worse.
The Professor

[redqueen]

27. So the WaMu failure wasn't a big deal?

Do you not think that in the immediate future, if something isn't done by Congress, a small number of huge banks will end up gobbling up many smaller ones? If not, why? And if so, do you think that's a desirable outcome?

[MadHound]

29. RQ none of this is a desirable outcome

We're left with nothing but bad choices in this scenario. The trick is not to choose the worst among them, yet the Bush administration is doing just that, initiating a fear mentality that stampeded us right off that cliff of worst possible decision.

[redqueen]

30. The Paulson deal is dead.

The worst among them is already not an option.

The Dems are in the drivers seat now... should we push for the best bailout possible, or let a few huge banks buy out the smaller ones, and let the crash be a much more severe one rather than a softer one?

[ProfessorGAC]

33. Never Said That

All i am saying is that none of the plans, as they've been presented (admittedly absent signficant detail) address the real causes of the problem. They are addressing the symptoms, not the illness.
The Professor

[redqueen]

36. Do you think the Dems are blowing smoke re: oversight?

Is killing the Dem version of this bill helpful, simply because it's not perfect?

It seems to me that if we can get a few critical demands met, that allowing this to happen will benefit us (and the world, really) more than letting the chips fall where they may for the time being (fewer, larger, more powerful banks and more suffering citizens).

[ProfessorGAC]

37. Oversight Is One Thing

Addresses the causes are a completely different matter. Their proposal does one. Not the latter. At least in the detail that has been published.
The Professor

[redqueen]

38. So you think killing the Dem version of this bill is the best option?

That we could do better later, after there are fewer banks at all, and the economy is worse off?

[ProfessorGAC]

39. No. I Said Take The Time It Takes To Do It Right

That's not the same as killing the bill. It's working from a good starting point and refining it until it's actually a solution and not merely a reaction.
GAC

[redqueen]

40. The way I see it... the Paulson con job was the "reaction"...

a planned reaction but still... and this Dem bill is the good starting point.

Also I see the bailout as a fait accompli... which is why I'm pushing for swamping Congress with our demands rather than "NO BAILOUT!" sloganeering.

[ProfessorGAC]

41. On That Point, We Completely Agree

As i said to Javaman (i think) there are two issues. One is purely economic. One is purely political. The approach to both issues likely needs to be different.
GAC

[redqueen]

43. Well they're going forward with this bill...

and have apparently attached all sorts of things to it like an extension of unemployment benefits, state medicaid funds, etc. (Don't know the source of that info.) Not sure how that would play out, but I'm hopeful that voting against it because a measly 1/10th of the funds is going to citizens might not play out well with republican voters.

We'll see...

We sure do live in interesting times.

[MadHound]

28. Sometimes it pays to have my own in house economist

My lovely, smart intelligent wife. Not to mention that I work with a number of economists and can pick their brains also. To the last one, they're all scared shitless of this bailout.

[babylonsister]

7. I don't know if the writer is also an economist, but he's writing about

economists' opinions on the bailout. Many don't think it's as critical a situation as some would like us to believe.

[ProfessorGAC]

34. Yes & No

There are those of us who don't think it's quite the crisis that Paulson and his gang are suggesting. But, no matter how serious it is, patience and doing the right thing to address the sickness are the solutions, not a knee-jerk response to treat the symptoms.
The Professor

[Not the Only One]

8. The lending freeze is between banks.

Other lending is doing fine. Our economy has plenty of liquidity. The Fed has been printing money like mad since 2002, which has devalued the dollar. Interest rates are low.

[redqueen]

18. ...

[OhioChick]

11. K&R

:kick:

[mikelgb]

12. It's needed just like the Iraq War was needed

[lumberjack_jeff]

13. a) a depression awaits that a bailout will prevent.

b) a depression awaits that a bailout will delay
c) a depression awaits on which a bailout will have no effect
d) a less severe economic crisis is in process, which primarily will harm financiers.

To agree with a bailout, we have to make not one, but two assumptions. It is not at all clear that either is accurate.

[bvar22]

14. K&R

I'm not an "economist" (but I slept at a Holiday Inn Express).

This whole "emergency" stinks.
It has ALL the signs of another Republican Smash & Grab.

[bdamomma]

19. or shock and awe

[redqueen]

16. So WaMu collapsing last night was what... no big deal?

We want to help a few huge banks control everything?

:wtf:

[Tierra_y_Libertad]

17. The bailout IS needed. By the bankers and the CYA politicians. K&R

They made the mess and are now telling us to cough up the dough to save their sorry asses.

[Hidden Stillness]

26. There is Something Really Wrong With This "Plan," With No Plan to It

The fact that this thing is being hurried, rushed, screamed about--(when nothing about the situation is new, they have done absolutely nothing to actually help anyone in the country for all the years of the Cheney-Bush Admin. until this very moment, and this helps none of the emergencies such as unemployment or foreclosure now)--so they can get this huge and unexplained thing passed before Bush-Cheney-Paulson etc., all run away, is the most suspicious thing.

Why is it a bailout, with no prosecutions, regulation, reorganization, and why is the part about never, NEVER being able to challenge any of the actions in a court, still there? Are all of these corporations--including a British bank (?)--connected with Paulson, as it seems; like Cheney's "energy" policy that only involved Cheney's corporations? If they claim they are giving all this money to the rich brokers so that they can "help" the "little people" (please give one example ever, where that has happened), then why don't they just use the money to set up new Federal agencies (as Roosevelt did) to buy and re-negotiate terms for mortgages, (and, now, credit debt), to help people with the real problem directly--and let the worthless, useless hedge funds, speculators, and all others who were contributing nothing to the economy anyway, fail?

Clinton told us to bail out Mexico during the 1990s, "because it would help our economy," it did not; Reagan shifted most of the taxes of the rich onto us, "so they could help us," they did not; it is always a scam, and the fact that it is being hurried, then told it is "for us," when nothing helps us, is infuriating, and the American people don't like it. Unfortunately, yet again, the stupid simple-minded media paints it all as "conservative Republicans" against it, when there are many groups against it, and the best, most exciting railing against it I have heard yet, has come from the populist New Deal-style Democrat Marcy Kaptur of Ohio, who wants the assets of these brokerage houses/hedge fund managers, seized, and profits turned over to the taxpayers and the Federal Government!

[OmmmSweetOmmm]

31. And I have said it many times here...Paulson said he was sitting on his plan for several months.

Huh?