Economic Crisis, Economics, News and Current Events, Politics

Bailout Driven by Fear, Not Fact

“The 700 Billion dollar bail out for Wall Street is being driven by fear, not fact.”

Dennis Kucinich

“…the claim by the Fed and Treasury that spending $700 billion of public money is the best way to recapitalize banks has absolutely no factual basis or justification.”

Nouriel Roubini

“Almost every economist I know rejects the Paulson approach and argues instead for directly injecting capital into the banks. The taxpayers give them the money and then we own some, or all, of the bank. (That’s what Warren Buffet did with Goldman Sachs.)”

Dean Baker

It seems to me those folks are right.  The 700 Billion dollar bailout is being driven by fear, rather than reason, and there are better ways forward than the one proposed by Paulson and tweaked by Congress.

Other nations have faced this same problem (albeit in a smaller way).  Most have handled it differently, and come out ahead.  There’s no reason we should be trying a method that will leave each one of us saddled with $2300 of debt (or up to $6900 of debt when interest on the debt is factored in) — and has no guarantee of working.  There are better methods out there.  Yet, Congress appears willing to go along with the Paulson plan — not because they are acting rationally — but because they have allowed themselves to be panicked.

Asking our Congress to take on Wall Street — or even take on our weak Administration — and do something right for a change is too much like asking pampered house cats to chase wolves.  It’s simply asking too much, given the quality of the majority of people in Congress.

6 thoughts on “Bailout Driven by Fear, Not Fact”

  1. Not just fear , but a lot of ignorance

    And some of the People are also responsible as they have lived on easy foreign credit, far too recklessly, for far to long.

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  2. Interesting comments, Prax! I agree with you to the extent that I think ignorance is also a factor in how the politicians are behaving. But I also think they’ve panicked too.

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  3. I have just one question about this whole thing. Given that the US National Debt (the amount owed by the Genreal Fund into which your taxes are paid) is already 10 Trillion dollars, where did this 700 billion come from? Did they just ring the mint and get them to print some more? Or did they borrow it, thereby exacerbating the problem. And borrow it from whom? Someone is buying your country on the cheap, I think.

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  4. Hi Paul! There are only three ways the Government can raise the 700 billion. As you note, they can print it or borrow it. The third option, however, is they can sell government assets.

    I have heard that it’s most likely all three ways will be used to raise the money. Of course, if they print too much of it, then we risk inflation. And if they borrow too much of it, then we risk being swamped by the interest payments on the debt — in addition to the unsavory fact someone is buying the country on the cheap. Last, I don’t know how much the country has in assets to sell, but I imagine it’s not that much in the end — unless we sell off the national parks, etc.

    Basically, there’s no real risk free or perfectly acceptable way to raise 700 billion.

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  5. There is a NYT article on the US debt today (see http://euandus3.wordpress.com/2009/11/23/12-trillion-in-debt-living-beyond-our-means/). It hasn’t been just after the financial crisis of 2008 that the US Government has had unbalanced annual budgets… And consider consumer “use” of credit cards? Is there something about our society–about ourselves–that we are missing because we are in it? (e.g. a fish doesn’t “see” its water). I don’t think we are digging deep enough.

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