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Anti-bailout economists

Posted by Christopher Shea  September 24, 2008 10:42 AM

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Several Boston-area economists are among the dozens who have signed a petition condemning the Bush administration's bailout plan. They include M.I.T.'s Daron Acemoglu; Harvard's Claudia Goldin, Oliver Hart, Jeffrey Miron, Julie Holland Mortimer, and David Scharfstein; and Boston College's Philip Strahan.

They list three objections to the plan, in a statement targeted at the leaders of the House and Senate:

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, Americas 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.

Matt Yglesias notes a shortage of "superstar" names on the petition, but it seems fairly safe to add Harvard's Greg Mankiw to the roster of economists with concerns. On his blog, Mankiw links enthusiastically to a Naked Capitalism commentary entitled "Why You Should Hate the Treasury Bailout Proposal." And he quotes approvingly the following comments from Allan Meltzer, a political economist at Carnegie Mellon, delivered by Meltzner on the PBS NewsHour:

If they're going to do something, then what they ought to do is make loans, which the financial institutions have to repay with interest. And if you think -- that's an idea which the Chileans have used in a bigger crisis than this for them in 1982, and it worked for them. People paid back the loans. They weren't allowed to pay dividends until they repaid the loans. They weren't allowed to take bonuses until they repaid the loans. I think that's the way -- if we're going to do this, then that's the way we should do it.

The Administration seems to have imagined that the atmosphere of crisis would cause people to swallow any doubts they had about the specifics of the bailout, but that hardly seems to be what's happening.

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6 comments so far...
  1. The large lenders,enticed customers,with easy credit..and hooked people in,to mortgages,that were beyond the payees ability to sustain.

    Posted by Rob Levy September 24, 08 07:47 PM
  1. Yes, we consumers and taxpayers and citizens have learned all about the "Shock Doctrine" that Naomi Klein wrote about in her book of that title. And KNOWING about it, we have become more knowledgeable and IMMUNE.
    We are not being stampeded, THIS time, as we were into a pointless quagmire of a war that has killed a million innocent Iraqi citizens.
    We are organizing and fighting back. We are questioning and debating, also. Too bad "shock" doesn't work for the Ruling Class the way it s'posed to!

    Posted by Barbara Tomlinson September 25, 08 07:27 AM
  1. To what needs a comment, you should know how wrong this is if passed. I have no desire to pay taxes to bail out thieves that knew they were doing wrong, and probably knew that for a long time. It's their fault. Let them give up the majority of what they have in the bank, then let them do 15 to 20 yrs. straight time in prison.

    Posted by Larry Schauff September 25, 08 09:49 PM

    Posted by JOSSIE ROSS September 26, 08 12:25 AM
  1. Undoubtedly, The Shock doctrine

    Posted by middlefingermedia.net September 26, 08 03:19 PM
  1. This is ridiculous!
    I am noticing all the news channels pumping the public with scare tactics just to convince the American people that this bail out is necessary.
    What a load of garbage!
    They keep blaming the people of this country for these problems..nevermind it was George Bush that put us in a war that costs BILLIONS..nevermind that it was Bush that blocked all proposals for alternative fuel research which allowed them to raise prices of oil to such levels that no one could afford to pay their bills AND BUY GAS FOR THEIR CARS SO THEY COULD GO TO WORK!..nevermind that it was Bush that got on T.V. and told the American people everything was fine..nevermind that Pelosi just mentioned openly that this money would NOT GO TO HELP AMERICANS THAT LOST THEIR HOMES..nevermind that
    Washington Mutual (just one of many) PAID THEIR NEW CEO A 20 MILLION DOLLAR PACKAGE AND THEN TURNED AROUND TO ASK THE GOVERNMENT FOR A BAIL OUT..nevermind that this bail out legislation would go to help ALIENS to purchase foreclosed homes of AMERICANS..nevermind that the President is now trying to STEAL PUBLIC TAXPAYER MONIES TO PAY FOR PRIVATE INDUSTRIES THAT HAVE LIED AND CHEATED FOR YEARS AGAINST THE PUBLIC OF THIS COUNTRY.
    nevermind all that..
    just give King George what he wants or else we will all have to pay.
    Nothing at all to do with the government elected officials that have proven time and time again to be the real enemy to the American people!
    And now..under closed and secretive doors..they try to hatch another plan to harm each and every one of us!
    I say hanging is too good for them!

    Posted by Mia September 27, 08 02:07 PM
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