Congress is set today to vote on a plan to commit $700 billion of U.S. taxpayer money on a Wall Street bailout plan that editorialists (such as the D&C), politicians and pundits across the country cry as one, "painful, but necessary."
But is it?
Some economist and other observers disagree.
From the McClatchy News Service:
"It's more hype than real risk," said James K. Galbraith, a University of Texas economist and son of the late economic historian John Kenneth Galbraith. "A nasty recession is possible, but the bailout will not cure that. So it's mainly relevant to the financial industry."
This Washington Post story questions not so much the necessity of the bailout, but the wisdom of the rush to get it passed.
David Sirota offers up five reasons why the bailout is insane, and concludes, "If this bill passes, it will be a profound referendum on the dominance of money over democracy in America."
Caroline Baum offers up a variety of view points, including:
Paulson has said repeatedly that the "root cause'' of the problem is "the housing correction, which has resulted in illiquid mortgage-related assets that are choking off the flow of credit."
"The root cause of the problem is that we don't have any homebuyers," Edward Leamer, an economist at the University of California, Los Angeles, told the Associated Press.
The "root cause of this crisis" is "the lack of capital in the banking system," said Paul Ashworth of London's Capital Economics. "The only way the Treasury's plan would have any meaningful impact on banks' capital ratio is if it vastly overpaid for the securities it is buying."
If you don't diagnose the problem correctly, the odds are you won't prescribe the right medicine. The troubled assets are the result, not the cause, of loose lending practices, a housing bubble that burst, a glut of unsold homes and home prices that are still too high relative to incomes and rental costs, according to many economists.
"If you need money, sell assets,'' Rosner said. "Excess inventory is liquidated at 99-Cent Stores every day, and it doesn't require the government to get involved.''
The Wall Street Journal, in an article that speculates that the bailout further erodes Bush's so-called "conservative legacy," notes:
Meanwhile, conservative legal scholars question whether the rescue plan is constitutional, and predict court battles in the years to come, similar to those set off by President Franklin Roosevelt's New Deal programs.
Grover Norquist, a leading conservative organizer and president of Americans for Tax Reform, says the financial crisis stems from Mr. Bush's abandonment of conservative principles. He cites the president's failure to undo policies of the past that led banks to make unwise loans, as well as expanding the roles of mortgage giants Fannie Mae and Freddie Mac.
Dean Baker say there is no way a no-bailout leads to another Great Depression.
While their argument is wrong, these are powerful voices in national debates. If the bailout proves to be an obstacle to effective stimulus in future months and years, then the bailout could lead to exactly the sort of prolonged economic downturn that its proponents claim it is intended to prevent.
Pulitzer Prize winner and Rochester-area resident David Cay Johnston points to an IMF study that suggests bank bailouts rarely work as intended and transfer wealth from taxpayers to bankers.