Academic "Consensus" on Bailout

Campus Report ^ | October 21, 2008 | Malcolm A. Kline

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Academic “Consensus” On Bailout

by: Malcolm A. Kline, October 21, 2008

Beware of people who tell you what “everybody knows,” particularly if they are academics. “Virtually every economist who looked at the original plan said it was the wrong way to go,” Loyola finance professor George G. Kaufman said, as quoted by the Washington Times. “All of us were disappointed that it took [U. S. Treasury Secretary Henry M.] Paulson and the Administration so long to recognize the obvious.”

Actually, what was obvious to Kaufman and his ilk was that, in their view, the plan did not go far enough in nationalizing finance. As it turns out, a couple of hundred economists felt that it went entirely too far and petitioned Congress to let lawmakers know about their anxiety.

“On September 25, just after White House negotiations over a $700-billion Wall Street bailout plan collapsed in acrimony, Sen. Richard C. Shelby, an Alabama Republican who opposed the bailout, stood in front of television cameras and waved a petition,” David Glenn reported in The Chronicle of Higher Education on October 17, 2008. “It was signed by roughly 200 economists who were also skeptical.”

“The plan is a subsidy to investors at taxpayers’ expense,” the petition read. “Investors who took risks to earn profits must also bear the losses.”

“Not every business failure carries systemic risk,” the petitioners pointed out. “The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.”

The economists went on to note that “Neither the mission of the new agency nor its oversight are clear.”....