Sunday, September 21, 2008

On the Bailout Plan

I'm watching Treasury Secretary Paulson on Fox News Sunday. Chris Wallace is asking all the right questions, and Paulson doesn't have good answers. Let's see if he has any better answers when he appears on NBC, CBS, ABC, and CNN later this morning. For informed commentary on the plan, I suggest Krugman and Delong, especially "No Deal" by Krugman, and also Sebastian Mallaby's column today. Here is also an excellent extended discussion of what's wrong with the plan.

The plan is not complicated: it would give the Treasury Secretary a checkbook enabling him to spend $700 billion of taxpayer money to buy mortgage-backed assets from financial institutions. This would be a transfer of money from taxpayers to the stockholders and executives of these companies.

It's hard to imagine that Obama, or McCain for that matter, could support such a plan. Neither candidate will want to end up supporting a plan which the other candidate scorns as a bailout of stockholders and the corporate executives who got us in this mess in the first place.

As Delong points out, even if you think this is the right plan, and you have total confidence in Paulson, there's still a 40% chance McCain will be president in 4 months. Would you want Treasury Secretary Phil Gramm, a candidate for "lead perp" in the crisis, to have a blank check worth $700 billion in his hands?

An awful article in the NY Times today which presents the plan as a fait accompli, quotes Paulson:

There was only one way that we could reassure the markets and deal with a very significant and broad-based freezing of the credit market.
This is not correct. There are other options. Mallaby's column has a good discussion.

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