xcel
09-26-2008, 10:37 AM
3 of the 200 Academic Economists are Nobel prize winners… (http://www.washingtonpost.com/wp-dyn/content/article/2008/09/25/AR2008092504531_pf.html)
http://www.cleanmpg.com/photos/data/501/Treasury_Secretary_Henry_Paulson_and_Bush.jpgNeil Irwin and Cecilia Kang – Washington Post – Sept. 26, 2008
Treasury's Paulson gave a piece of financial advice to students at a High School in Virginia in 2006.
“It’s very simple,” he said. “Make sure you don’t spend more than you earn.”
Maybe Paulson should have shared it with the guy over his right shoulder? A crisis builds and a week later the Bush Administration is asking for another $10,000 over and above the $65,000 they have already taken from every American family the past 7 years? Another blunder in the making. -- Ed.
The Bush administration's pitch for a sweeping bailout of the financial system has centered on two simple premises: that the economy could suffer a crippling downturn if action is not taken very quickly and that this action should consist of the government buying troubled mortgage securities from banks and other institutions.
But many of the nation's top economists disagree with one or both of those ideas, even as many top political leaders have swung behind them.
Wall Street economists have mostly endorsed Treasury Secretary Henry M. Paulson Jr.'s plan, or a variation thereof.
But almost 200 academic economists -- who aren't paid by the institutions that could directly benefit from the plan but who also may not have recent practical experience in the markets -- have signed a petition organized by a University of Chicago professor objecting to the plan on the grounds that it could create perverse incentives, that it is too vague and that its long-run effects are unclear. Sen. Richard C. Shelby (Ala.), ranking Republican on the Budget Committee, brandished that letter yesterday afternoon as he explained his opposition to the bailout outside a bipartisan summit at the White House. The petition did not advocate any specific plan, including that offered yesterday by House Republicans.
Economists tend to agree that the nation's economy is at serious risk as the flow of credit threatens to freeze. Just yesterday, the interest rate at which banks lend to each other rose steeply, as it has every day this week, suggesting that lenders are hoarding cash. History shows that when this happens, a broad economic crisis can follow, for instance, the Great Depression and Japan's decade-long recession in the 1990s.
"If nothing is done, the potential for these markets to seize up in a big way is definitely there," said Frederic S. Mishkin, an economist at Columbia University who was a Federal Reserve governor until last month. "When you look at the history of these crises, when things spin out of control, the cost to fix it later goes up exponentially."
But many others with a deep theoretical knowledge of finance and experience in government are skeptical of the structure of Paulson's plan -- and the speed with which it has been crafted.
The critics can be roughly divided into two camps. One group thinks money should be directly infused into banks, which should allow it to trickle down through the financial system to borrowers. A second group thinks the government should buy individual mortgages, thus helping ordinary Americans more directly, with the benefits trickling up to the banks.
The plan promoted by Paulson and Fed Chairman Ben S. Bernanke is somewhere in between: buying up packages of mortgages and hoping that the benefits spread both up to banks and down to households.
"The plan is a trickle-down approach from banks to Main Street," said Alan S. Blinder, a professor at Princeton University. "But if you reduce the flood of foreclosures and defaults" -- which he would have the government do by buying loans directly and then renegotiating the terms -- "it will make mortgage-backed securities worth more."
That might help ordinary Americans but would be extremely difficult to administer. The government would have to make decisions on the foreclosure and resale of individual houses all over the country. Still, many economists with left-of-center political views favor some variation of this approach to the plan endorsed by Bush… http://www.washingtonpost.com/wp-dyn/content/article/2008/09/25/AR2008092504531_pf.html
http://www.cleanmpg.com/photos/data/501/Treasury_Secretary_Henry_Paulson_and_Bush.jpgNeil Irwin and Cecilia Kang – Washington Post – Sept. 26, 2008
Treasury's Paulson gave a piece of financial advice to students at a High School in Virginia in 2006.
“It’s very simple,” he said. “Make sure you don’t spend more than you earn.”
Maybe Paulson should have shared it with the guy over his right shoulder? A crisis builds and a week later the Bush Administration is asking for another $10,000 over and above the $65,000 they have already taken from every American family the past 7 years? Another blunder in the making. -- Ed.
The Bush administration's pitch for a sweeping bailout of the financial system has centered on two simple premises: that the economy could suffer a crippling downturn if action is not taken very quickly and that this action should consist of the government buying troubled mortgage securities from banks and other institutions.
But many of the nation's top economists disagree with one or both of those ideas, even as many top political leaders have swung behind them.
Wall Street economists have mostly endorsed Treasury Secretary Henry M. Paulson Jr.'s plan, or a variation thereof.
But almost 200 academic economists -- who aren't paid by the institutions that could directly benefit from the plan but who also may not have recent practical experience in the markets -- have signed a petition organized by a University of Chicago professor objecting to the plan on the grounds that it could create perverse incentives, that it is too vague and that its long-run effects are unclear. Sen. Richard C. Shelby (Ala.), ranking Republican on the Budget Committee, brandished that letter yesterday afternoon as he explained his opposition to the bailout outside a bipartisan summit at the White House. The petition did not advocate any specific plan, including that offered yesterday by House Republicans.
Economists tend to agree that the nation's economy is at serious risk as the flow of credit threatens to freeze. Just yesterday, the interest rate at which banks lend to each other rose steeply, as it has every day this week, suggesting that lenders are hoarding cash. History shows that when this happens, a broad economic crisis can follow, for instance, the Great Depression and Japan's decade-long recession in the 1990s.
"If nothing is done, the potential for these markets to seize up in a big way is definitely there," said Frederic S. Mishkin, an economist at Columbia University who was a Federal Reserve governor until last month. "When you look at the history of these crises, when things spin out of control, the cost to fix it later goes up exponentially."
But many others with a deep theoretical knowledge of finance and experience in government are skeptical of the structure of Paulson's plan -- and the speed with which it has been crafted.
The critics can be roughly divided into two camps. One group thinks money should be directly infused into banks, which should allow it to trickle down through the financial system to borrowers. A second group thinks the government should buy individual mortgages, thus helping ordinary Americans more directly, with the benefits trickling up to the banks.
The plan promoted by Paulson and Fed Chairman Ben S. Bernanke is somewhere in between: buying up packages of mortgages and hoping that the benefits spread both up to banks and down to households.
"The plan is a trickle-down approach from banks to Main Street," said Alan S. Blinder, a professor at Princeton University. "But if you reduce the flood of foreclosures and defaults" -- which he would have the government do by buying loans directly and then renegotiating the terms -- "it will make mortgage-backed securities worth more."
That might help ordinary Americans but would be extremely difficult to administer. The government would have to make decisions on the foreclosure and resale of individual houses all over the country. Still, many economists with left-of-center political views favor some variation of this approach to the plan endorsed by Bush… http://www.washingtonpost.com/wp-dyn/content/article/2008/09/25/AR2008092504531_pf.html