Politicians prepare bailout while economists tell them to wait and voters tell them not to do anything, guess who wins
Posted on September 28th, 2008 by bile Tags: Alabama, America, bailout, Barack Obama, Budget Committee, Bush administration, Congress, Connecticut, David K. Levine, Dodd, economics, elevated inter-bank lending rates, Erik Brynjolfsson, Harvard University, Henry Paulson, Jeffrey Miron, Kent Conrad, Massachusetts, Massachusetts Institute of Technology's Sloan School, Nancy Pelosi, North Dakota, Richard Shelby, St. Louis, Tony Fratto, United States, USD, Washington, Washington University in St. LouisU.S. lawmakers said they made a breakthrough in talks on a $700 billion plan to revive the credit markets and expect to announce an agreement on legislation later today. Negotiators resolved “our differences so we can go forward with a package to stabilize the market,” House Speaker Nancy Pelosi told reporters when talks at the Capitol ended after midnight Washington time.
Treasury Secretary Henry Paulson said the proposed deal “will work and be effective” in the marketplace. More work needs to be done, “but I think we’re there,” he said.
Bush spokesman Tony Fratto said early this morning that administration officials are “pleased with the progress tonight and appreciate the bipartisan effort to stabilize our financial markets and protect our economy.”
Senator Kent Conrad, a North Dakota Democrat who chairs the Budget Committee, said $250 billion would be immediately available and another $100 billion could be used when requested by the president for debt purchases. Congress could bar the expenditure of the remaining $350 billion only by passing a resolution to block it from being spent.
The package includes a provision aimed at “preventing golden parachutes” for executives of companies who leave firms that have sold troubled assets to the government, Conrad said.
Companies that sell debt to the government will issue stock warrants to the government so that taxpayers “can gain as companies recover” from economic difficulties, Conrad said.
A proposal that would allow judges to modify mortgage terms for struggling borrowers in bankruptcy proceedings wasn’t included, said Dodd, a Connecticut Democrat. “We pushed very hard” for the bankruptcy provision, “but we feel we got good foreclosure mitigation language in there,” Dodd said.
Democratic presidential nominee Barack Obama said the plan “appears to embrace” his principles that the legislation include oversight by an independent board; protections for taxpayers to ensure they receive any profits; measures to help homeowners stay in their homes; and rules to make sure “CEOs are not being rewarded at taxpayers’ expense.”
“There were a series of breakthroughs here in the end” and the agreement on executive compensation “was certainly the most important,” Conrad said. He declined to give further details because the language being drafted by lawyers is “quite complicated.”
Taxpayers will not see a dime of any possible profits… the GOVERNMENT will. What Mr. Obama means is he will be less likely to tax the shit out of us if the happen to make a few pennies from this ‘deal.’ Which is highly unlikely. It really hits home I hope, especially after reading below, that these politicians are not representatives of the people. They represent big business and the elite. It has always been like that and always will. The potential the government has due to its assumed role is a incredible draw on those who would like to use that power for their own interests. It is an inherently flawed system and no ammount of wishful thinking or “getting in the right guy” will fix it.
More than 150 prominent U.S. economists, including three Nobel Prize winners, urged Congress to hold off on passing a $700 billion financial market rescue plan until it can be studied more closely.
In a letter yesterday to congressional leaders, 166 academic economists said they oppose Treasury Secretary Henry Paulson’s plan because it’s a “subsidy” for business, it’s ambiguous and it may have adverse market consequences in the long term. They also expressed alarm at the haste of lawmakers and the Bush administration to pass legislation.
The economists who signed the letter represent various disciplines, including macroeconomics, microeconomics, behavioral and information economics, and game theory. They also span the political spectrum, from liberal to conservative to libertarian.
Some lawmakers are already citing the letter as reason not to endorse the Paulson plan. Today Senator Richard Shelby, a Republican from Alabama, said he has “five pages of the leading economists in America that wrote to me and the leadership saying the Paulson plan is a bad plan. It will not solve problems. It will create more problems.”
Jeffrey Miron, a Harvard University professor and self- described libertarian, objects to what he says is “ a stunningly broad, aggressive government intervention without appropriate precedents.”
He advocates allowing the normal process of business failure and bankruptcy to run its course. “It’s just nothing like the calamity the administration is making it out to be,” he said.
Erik Brynjolfsson, of the Massachusetts Institute of Technology’s Sloan School, said his main objection “is the breathtaking amount of unchecked discretion it gives to the Secretary of the Treasury. It is unprecedented in a modern democracy.”
Advocates for a rescue plan this week point to a seizing up of credit markets, reflected in elevated inter-bank lending rates, as reason for action. Some economists are unconvinced.
“I suspect that part of what we’re seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout,” said David K. Levine, an economist at Washington University in St. Louis, who studies liquidity constraints and game theory.
Thank you Erik Brynjolfsson. I say something like that and people think I’m a conspiracy theorist. They would give you a bit more credit.
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September 29th, 2008 at 10:54 pm
[...] Jeffrey Miron , a Harvard University professor and self- described libertarian, objects to what he says is “ a stunningly broad, aggressive government intervention without appropriate precedents.” He advocates allowing the normal …[Continue Reading] [...]