Here is a letter signed by many economists that warns against several aspects of the bailout plan–all correct if weakly stated–and concludes that Congress should hold hearings. Compelling is not the word I would use to describe it. (Thanks MR)
As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. 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, 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.
For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.
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It used to be, until the Keynesian sweep of ambitious economists, that economists were a safeguard against
things such as counterfeiting and destruction of savings.
Welcome back!
Perhaps they should be demanding a coin gold or coin silver (or copper, the way things are going) standard. That would clarify all our problems, pronto.
Well, what the government should do is kill the federal reserve, kill the income tax, and cut back the size of government by 90%. However, since there is a snowballs chance in hell they are going to do that – I don’t see why the current plan is much worse than any other one. It’s just a different path to the same outcome.
In fact, maybe we’ll get lucky enough for it to cut into budget of the Pentagon, NSA, CIA, FBI, DEA, EPA, NASA, the prisons system, kill the social security ponzi scheme, and so on.
How To Test The Politician’s Claim Of Change?
What is the existing system? An adequate description of the current system is Keynesianism. Now finally, in a real sense, Keynesian economics can contribute something of value!
We can use Keynesian economics as the key to our analysis. If any politician makes the claim that he (she) stands for change then our test is to see if they recommend practicing Keynesian economics or not. If they use fancy rhetoric and creatively play with words to emphasize their claim of ‘change’ but in reality they espouse Keynesianism then they are a candidate of status quo – not change.
The quick test is the ‘change’ away from a central bank and a fiat currency. These are fraudulent institutions inherent in Keynesianism. So how can a claim of change be anything other than lies from a politician since status quo is their real objective?
If the candidate cannot even pass the quick test it is certain that all of the other stances will be Keynesian also, just like all the rest of the ego-driven interventionists that have been in positions of influence for generations. These false claims of change mean that these candidates will just perpetuate the immorality of the unConstitutional coup.
The cost of this bailout is much greater than $700 billion. The cost of this bailout is the loss of economic freedom in this country on a scale that parallels the Great Depression era interventions. My brother called this the “Financial Patriot Act,” and I later learned that a NY Times finance reporter used the same language.
They are spot on. I love freedom more than I fear economic hardship. I wish are senators and representatives felt the same way.
This bailout is risky, however who really knows what to do as it is all about confidence.
This is scary stuff, spending so much tax payers money on the back end of the war on terrorism, do we have any money left and who are we in so much debt too?
This comment is very wise
The bailout won’t work because you can’t correct a basic insolvency by printing money. This is the Great Depression all over again, but with a twist: inflation instead of deflation. Until 1933 the dollar was backed by gold, which stopped the government from printing money to correct for falling asset values. In 1933, through executive order, the federal government confiscated all domestic privately owned gold. But we remained on a quasi gold standard until 1971 when we adopted pure fiat money.
Here is what could happen under the bailout. Most everything you buy will go up in price, food, energy, transportation, durable goods and pretty much anything imported. Financial assets, stocks, bonds, etc will fall in price. Real estate will fall in price. Loans will carry a high interest rate but T-Bill will have a low interest rate. That’s the good news. The bad news is hyperinflation Wiemar style.
In 1989 Japan faced a similar crisis, but one one important difference. They had a strong manufacturing base, and a high savings rate. They reduced interest rates to zero, but that did not stimulate demand, the price of real estate and stocks fell for over 15 years. They entered what economists call “the liquidity trap.”
The bailout is an attempt to buy time and hold back panic. When the public finally realizes what’s happening, they will be panic by hording cash and gold. Cash and gold together function as a hedge against inflation and deflation.
And also an interesting joke
Dear American:
I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.
I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.
I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transactin is 100% safe.
This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.
Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.
Yours Faithfully,
Minister of Treasury Paulson
There is a silver lining in this. Not since the 1970′s has Keynesian economics been tested as it will be tested with this bailout. Everyone should write letters to the editors of their local newspapers and declare this bailout a test of economic theories. If the US experiences a recession next year, Austrian economics has veen validated. If not, Keynesian economics has triumphed.
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