[Vision2020] [spam] Re: Debate about the bailout

[Sunil Ramalingam]

As I understand the facts, the Patriot Act was introduced after 9/11, and passed just a few weeks later.  I don't believe it was introduced while Bill Clinton was still in office (though I would not have been surprised if he signed it.)

Sunil

Date: Fri, 26 Sep 2008 10:19:41 -0700
To: sunilramalingam at hotmail.com
From: jeffh at moscow.com
Subject: Re: [spam] Re: [Vision2020] Debate about the bailout



The Patriot Act was debated for a year before passage.


At 09:35 AM 9/26/2008, you wrote:

Bruce,


I won't pretend that I have an understanding of this issue.  But I
do have a memory, and I recall this administration rushing a major piece
of legislation through: The 'Patriot' Act.  Without much (if any)
review Congress abdicated their responsibility and rubber-stamped the
bill.  The sky was going to fall if it didn't get passed. 
Butch Otter gets credit for voting 'No' on it.


Now again there's a rush to get this through.  This time it doesn't
affect anything as meaningless as our rights, it's money, so it's getting
more scrutiny.  Good.  


I'm not saying that perhaps it isn't necessary.  I do want Congress
to examine it and debate it before they pass it.


Sunil



Date: Fri, 26 Sep 2008 07:47:44 -0700

From: jeanlivingston at turbonet.com

To: vision2020 at moscow.com

Subject: [Vision2020] Debate about the bailout


The nation has tried to rush to a bailout solution based on the seeming
consensus that the financial markets, credit in particular, will collapse
or freeeze to our great and lasting detriment if a "deal" is
not obtained this week.


Senator McCain "suspended" his campaign and refuses to
participate in tonight's scheduled debate unless the deal, or at least an
agreed structure of the deal, is reached before it is time to fly to
Mississippi for the debate.  He, too, seems to accept the concept,
touted by bureaucrats and Wall Street economists alike and reiterated by
politicians of all stripes, that an immediate agreement upon a deal is
absolutely crucial.

 

We are trying in one week to structure and agree upon the largest
financial deal in our history.  George Will aptly termed this
phenomenon as acting like "lemmings in reverse," as everyone
rushes pell mell away from the proverbial cliff, from which lemmings
suppose! dly leap  as they blindly follow the lemming in front of
them.  It seems to me that getting a deal of this magnitude done
well in a considered fashion is more important than getting it done this
week.  That idea of "getting it right" seems to be taking
root.  Note the article reprinted below, which talks at length about
the split in "expert" opinion on how to structure the
bailout.  


All that being said, it appears that a deal may not be reached this week
due to the complexity of the situation and well meaning politicians,
conservatives and liberals alike, now struggling to "get it
right."  In my opinion, debate on this issue and "getting
it right" is paramount.  


For me, the importance of "debate" on the issue also means
getting the two presidential candidates discussing it openly in public
for the nation to hear, tonight.  


If a deal in Congress is reached today in time for the deb! ate tonight,
wonderful.  If a deal is not reached, I think Senator McCain ought
to hop on that plan and attend the scheduled debate, notwithstanding his
offer to "put the nation first" by sitting in Washington. 
Certainly, getting the deal done right in Congress is important. 
But skipping an hour and a half presidential debate -- when the financial
markets will be closed for the next two days -- makes no sense to
me.  Skipping the debate does not materially advance getting the
deal done right in a time frame that matters.  We need to hear what
Senator McCain has to say, and why his ideas are better or worse than
Senator Obama's.  As debate grows about the wisdom of the structured
bailout deal being proposed, the need for debate by our presidential
candidates likewise grows.


Bruce Livingston


Away from Wall Street, Economists Question Basis of
Paulson's Plan



By Neil Irwi! n and Cecilia Kang

Washington Post Staff Writers

Friday, September 26, 2008; A01




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 ske! ptical 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.

"There is a kind of suggestion in the Paulson proposal that if only
we provide enough money to financial markets, this problem will
disappear," said Joseph Stiglitz, a Nobel Prize-winning economist.
"But that does nothing to address the fundamental problem of
bleeding foreclosures and the holes in the balance sheets of
banks."

Coming from the other direction, more conservative economists worry that
by having t! he government buy mortgage securities, the Paulson plan
would manipulate prices in that market without getting at the nub of the
problem: that banks do not have enough capital and are having difficulty
raising any on private markets.

In a sign of how the debate over the economy has shifted in recent weeks,
some conservatives, even as they argue for a relatively limited
government role, are calling on the government to invest public money in
private banks.

"The root of the issue is recapitalizing banks," said Glenn
Hubbard, dean of

Columbia Business School and a former chairman of

President Bush's Council of Economic Advisers. "That could be
done more efficiently through the government injection of preferred
equity. Then the market coul! d figure out the prices of the
assets."

Many of these critics don't care for the assumption behind the
administration's plan that the market is now pricing these mortgage
securities incorrectly, a problem that the government intervention aims
to fix.

"The premise appears to be that the market is irrationally
pessimistic," wrote Greg Mankiw, a

Harvard University economist and another former Bush economic
adviser, on his blog this week. "That might be so. Nonetheless, one
has to be at least a bit skeptical about the idea that government
policymakers gambling with other people's money are better at judging the
value of complex financial instruments than are private investors
gambling with their own."

Some conservatives are now arguing, notably, that the government should
be investing in banks.

Many economists fault the Bush administration and C! ongress for moving
so quickly on the bailout package without allowing more time for debate.
That sentiment was reflected in the petition organized by John Cochrane
of the University of Chicago. (None of the economists quoted here were
signatories.)

"I totally disagree that this needs to be done this week. It's more
important to get it right," Blinder said.

Moreover, some economists said the proposed $700 billion may not be
enough to address all the problems stretching across the financial
landscape. "You only show up if you can win, and this is not that
package," said Simon Johnson, a professor at

Massachusetts Institute of Technology and former chief economist at
the

International Monetary Fund. "This cannot be the ultimate, deci!
sive solution if you are not addressing the underlying cause."

The plan is short on details, instead giving the Treasury secretary wide
latitude to determine how to execute the purchases of mortgage
securities.

"I'd like to see how they see the evolution of an end game. There
are still many questions," said Myron Scholes, a retired professor
at

Stanford University and Nobel Prize winner. He said how long the
government holds the assets and how they are later resold would be the
keys to determining whether the plan works.

 


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