Posted on 09/25/2008 11:33:23 AM PDT by Notary Sojac
To the Speaker of the House of Representatives and the President pro tempore of the Senate:
As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:
1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. 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.
2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.
3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.
For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.
Signed (updated at 9/25/2008 8:30AM CT)
Acemoglu Daron (Massachussets Institute of Technology) Adler Michael (Columbia University) Admati Anat R. (Stanford University) Alexis Marcus (Northwestern University) Alvarez Fernando (University of Chicago) Andersen Torben (Northwestern University) Baliga Sandeep (Northwestern University) Banerjee Abhijit V. (Massachussets Institute of Technology) Barankay Iwan (University of Pennsylvania) Barry Brian (University of Chicago) Bartkus James R. (Xavier University of Louisiana) Becker Charles M. (Duke University) Becker Robert A. (Indiana University) Beim David (Columbia University) Berk Jonathan (Stanford University) Bisin Alberto (New York University) Bittlingmayer George (University of Kansas) Boldrin Michele (Washington University) Brooks Taggert J. (University of Wisconsin) Brynjolfsson Erik (Massachusetts Institute of Technology) Buera Francisco J. (UCLA) Camp Mary Elizabeth (Indiana University) Carmel Jonathan (University of Michigan) Carroll Christopher (Johns Hopkins University) Cassar Gavin (University of Pennsylvania) Chaney Thomas (University of Chicago) Chari Varadarajan V. (University of Minnesota) Chauvin Keith W. (University of Kansas) Chintagunta Pradeep K. (University of Chicago) Christiano Lawrence J. (Northwestern University) Cochrane John (University of Chicago) Coleman John (Duke University) Constantinides George M. (University of Chicago) Crain Robert (UC Berkeley) Culp Christopher (University of Chicago) Da Zhi (University of Notre Dame) Davis Morris (University of Wisconsin) De Marzo Peter (Stanford University) Dubé Jean-Pierre H. (University of Chicago) Edlin Aaron (UC Berkeley) Eichenbaum Martin (Northwestern University) Ely Jeffrey (Northwestern University) Eraslan Hülya K. K.(Johns Hopkins University) Faulhaber Gerald (University of Pennsylvania) Feldmann Sven (University of Melbourne) Fernandez-Villaverde Jesus (University of Pennsylvania) Fohlin Caroline (Johns Hopkins University) Fox Jeremy T. (University of Chicago) Frank Murray Z.(University of Minnesota) Frenzen Jonathan (University of Chicago) Fuchs William (University of Chicago) Fudenberg Drew (Harvard University) Gabaix Xavier (New York University) Gao Paul (Notre Dame University) Garicano Luis (University of Chicago) Gerakos Joseph J. (University of Chicago) Gibbs Michael (University of Chicago) Glomm Gerhard (Indiana University) Goettler Ron (University of Chicago) Goldin Claudia (Harvard University) Gordon Robert J. (Northwestern University) Greenstone Michael (Massachusetts Institute of Technology) Guadalupe Maria (Columbia University) Guerrieri Veronica (University of Chicago) Hagerty Kathleen (Northwestern University) Hamada Robert S. (University of Chicago) Hansen Lars (University of Chicago) Harris Milton (University of Chicago) Hart Oliver (Harvard University) Hazlett Thomas W. (George Mason University) Heaton John (University of Chicago) Heckman James (University of Chicago - Nobel Laureate) Henderson David R. (Hoover Institution) Henisz, Witold (University of Pennsylvania) Hertzberg Andrew (Columbia University) Hite Gailen (Columbia University) Hitsch Günter J. (University of Chicago) Hodrick Robert J. (Columbia University) Hopenhayn Hugo (UCLA) Hurst Erik (University of Chicago) Imrohoroglu Ayse (University of Southern California) Isakson Hans (University of Northern Iowa) Israel Ronen (London Business School) Jaffee Dwight M. (UC Berkeley) Jagannathan Ravi (Northwestern University) Jenter Dirk (Stanford University) Jones Charles M. (Columbia Business School) Kaboski Joseph P. (Ohio State University) Kahn Matthew (UCLA) Kaplan Ethan (Stockholm University) Karolyi, Andrew (Ohio State University) Kashyap Anil (University of Chicago) Keim Donald B (University of Pennsylvania) Ketkar Suhas L (Vanderbilt University) Kiesling Lynne (Northwestern University) Klenow Pete (Stanford University) Koch Paul (University of Kansas) Kocherlakota Narayana (University of Minnesota) Koijen Ralph S.J. (University of Chicago) Kondo Jiro (Northwestern University) Korteweg Arthur (Stanford University) Kortum Samuel (University of Chicago) Krueger Dirk (University of Pennsylvania) Ledesma Patricia (Northwestern University) Lee Lung-fei (Ohio State University) Leeper Eric M. (Indiana University) Leuz Christian (University of Chicago) Levine David I.(UC Berkeley) Levine David K.(Washington University) Levy David M. (George Mason University) Linnainmaa Juhani (University of Chicago) Lott John R. Jr. (University of Maryland) Lucas Robert (University of Chicago - Nobel Laureate) Luttmer Erzo G.J. (University of Minnesota) Manski Charles F. (Northwestern University) Martin Ian (Stanford University) Mayer Christopher (Columbia University) Mazzeo Michael (Northwestern University) McDonald Robert (Northwestern University) Meadow Scott F. (University of Chicago) Mehra Rajnish (UC Santa Barbara) Mian Atif (University of Chicago) Middlebrook Art (University of Chicago) Miguel Edward (UC Berkeley) Miravete Eugenio J. (University of Texas at Austin) Miron Jeffrey (Harvard University) Moretti Enrico (UC Berkeley) Moriguchi Chiaki (Northwestern University) Moro Andrea (Vanderbilt University) Morse Adair (University of Chicago) Mortensen Dale T. (Northwestern University) Mortimer Julie Holland (Harvard University) Muralidharan Karthik (UC San Diego) Nanda Dhananjay (University of Miami) Nevo Aviv (Northwestern University) Ohanian Lee (UCLA) Pagliari Joseph (University of Chicago) Papanikolaou Dimitris (Northwestern University) Parker Jonathan (Northwestern University) Paul Evans (Ohio State University) Pejovich Svetozar (Steve) (Texas A&M University) Peltzman Sam (University of Chicago) Perri Fabrizio (University of Minnesota) Phelan Christopher (University of Minnesota) Piazzesi Monika (Stanford University) Piskorski Tomasz (Columbia University) Rampini Adriano (Duke University) Reagan Patricia (Ohio State University) Reich Michael (UC Berkeley) Reuben Ernesto (Northwestern University) Roberts Michael (University of Pennsylvania) Robinson David (Duke University) Rogers Michele (Northwestern University) Rotella Elyce (Indiana University) Ruud Paul (Vassar College) Safford Sean (University of Chicago) Sandbu Martin E. (University of Pennsylvania) Sapienza Paola (Northwestern University) Savor Pavel (University of Pennsylvania) Scharfstein David (Harvard University) Seim Katja (University of Pennsylvania) Seru Amit (University of Chicago) Shang-Jin Wei (Columbia University) Shimer Robert (University of Chicago) Shore Stephen H. (Johns Hopkins University) Siegel Ron (Northwestern University) Smith David C. (University of Virginia) Smith Vernon L.(Chapman University- Nobel Laureate) Sorensen Morten (Columbia University) Spiegel Matthew (Yale University) Stevenson Betsey (University of Pennsylvania) Stokey Nancy (University of Chicago) Strahan Philip (Boston College) Strebulaev Ilya (Stanford University) Sufi Amir (University of Chicago) Tabarrok Alex (George Mason University) Taylor Alan M. (UC Davis) Thompson Tim (Northwestern University) Tschoegl Adrian E. (University of Pennsylvania) Uhlig Harald (University of Chicago) Ulrich, Maxim (Columbia University) Van Buskirk Andrew (University of Chicago) Veronesi Pietro (University of Chicago) Vissing-Jorgensen Annette (Northwestern University) Wacziarg Romain (UCLA) Weill Pierre-Olivier (UCLA) Williamson Samuel H. (Miami University) Witte Mark (Northwestern University) Wolfers Justin (University of Pennsylvania) Woutersen Tiemen (Johns Hopkins University) Zingales Luigi (University of Chicago) Zitzewitz Eric (Dartmouth College)
...his name was Henry Paulson...
...his name was Henry Paulson...
...his name was Henry Paulson...
Interesting... BTTT
The problem is that Paulson is not an economist, but a dude who worked for Goldman-Sachs. Sure, he’s bright and knows how to wheel and deal to make money— but he’s not an objective guy—has to protect his buds on Wall Street, has to grease the wheel so after he gets finished with his washington stint he can cash in on the favor.
George Bush deftly inserted Paulson, and Bernacke into these jobs, putting the foxes in charge of the hen house!
There are no coincidences.
His name is about to become an adjective.
Example: Grease your cheeks and bend over, we’re about to get Paulsoned.
First: I want to know the party affiliation, and working background, of the entire list of “economists”, particularly since so many on the list hale from the most liberal and Marxist bastion in the world - U.S. colleges and universities.
Second: When they say “Investors who took risks to earn profits must also bear the losses”, the composers of this sentence are intentionally trying to get you to see, in your mind, “Wall Street executives” and rich people with money (investors).
But, in reality, the bulk of the virus, the bulk of the “investors” are in your local bank, the companies in your 401k, the companies in your mutual fund, your insurance company, you or your employers pension plans, etc. etc. etc. So, apparently, these “economists” don’t think that every form of your savings and investment should be helped out; just devalued.
Me thinks this group of “economists” have a non-economic agenda.
And those 401Ks that are denominated in dollars, they'll hold up great too??
Fight Club reference, BTW.
Woody Harrelson’s character in Kingpin gave us the act of being “Munsoned” when things go horribly wrong.
Great flick. Hell. Anything in life can be reduced to a movie moment, right?
“I guess that pumping a few trillion of additional unfunded debt onto Uncle Sam’s balance sheet will leave my cash savings looking jes’ fine, right??....”And those 401Ks that are denominated in dollars, they’ll hold up great too??”
Look, if it makes you feel better you can call $700 billion a few $trillion.
Second: your savings account and your 401K are yes valued in dollars and invested mostly in U.S. securities.
So what is it that world traders are saying today about the bailout so far. (1)dollar is up against Euro, (2)gold is down in U.S. and Europe, (3)Dow is up 225, and Oil is up because traders see economic recovery, and oil demand higher, following the “bail out”.
But, if you like to feel gloomy, go ahead.
Lots of people from Chicago school of Economics which is the most pro-market school there is from what I know. In general the list of names is very impressive. Some are business school finance guys, many general economists. I am not expert unfortunately my knowledge of the subject is limited to half undergraduate degree in Economics.
BTW it does not matter who made investment, you play the game you got pay the price.
This bail out is looking like a terrible mistake. I think Bush is scared about his “legacy” so he had this knee jerk reaction and with election coming up I am afraid the populist short term approach will prevail. This is something that our grand kids kids will be still paying for
Senator Bunning just mentioned this letter to Shep Smith. He’s strongly and vocally against the bailout. Could be a good sign they won’t do it. Also a Fox producer just posted that McCain and the House Republicans are presenting an alternate plan and obstructing the bailout. Really hope that’s true!
Me too, FRiend, I pray you are right.
Look, if “market economics” on its own created the mess, I would maybe agree with you, but this mess was not going to happen - the size and scale of the problem - except for the institutional size and clout of the government elephants interfering in the market - Freddie and Fannie; and with their government bosses asking them to and letting them run wild. GOVERNMENT created the crisis, so of course government should try to correct it.
It's become clear that the man who at the start of his first term dreamt of being the second Ronald Reagan now, at the close of his second term, is destined to be the second Jimmy Carter.
No matter the reason for it, such rush to basically nationalize a part of the financial system is just a really bad idea. Cure here might be more deadly then disease itself. This crises might just resolve itself in the next few years, this “solution” will have effect 50 years from now and not a good effect either.
“This crises might just resolve itself in the next few years, this “solution” will have effect 50 years from now and not a good effect either.”
Your first point is correct, and why, that point makes it also true that what Paulson is “buying” may not, in the end, leave an extra $1 trllion new debt on the Treasury’s books.
But, the institutions that are holding what Paulson will buy have two problems: (1)regulations require that some of what they are holding be valued at less than zero, today, at “market prices”, today, which increases the spread between their regulatory required asset and liability ratios; (2)which produces the demand that they raise capital FOR THEMSELVES, NOT TO LEND; which (3)is freezing up new capital investments and credit liquidity (the largest multi-location car dealer company in the southern states, with more than a $1 billion in revenue in 2006, closed their entire business this week - too many buyers cannot get loans.)
Some of us have offered (and Berneke has even suggested the possibility) that many institutions be allowed to, temporarily, use asset and debt valuation algorythims they used before “mark to market” was made mandatory. What the entire industry does not know is how far that will account for identifying the viral and non-viral components of securitized mortgage instruments and credit debt swaps, and how soon; AND NONE OF THEM BELIEVE KNOWING THOSE ANSWERS IS POSSIBLE - WITHOUT A HOLDING PLACE FOR THE VIRUS (the bailout) BEFORE ALL CREDIT LENDING AND NEW CAPITAL INVESTMENT FREEZES.
The “bailout” is really about your first point - time will correct allot of it - and clearing the obstruction the virus is creating, until time can provide some true settlement values for most of it.
As far as your “50 year” comment; I can only say that what seems to be suggested is no worse than the mere existence of Freddie and Fannie and they were created in the depression and legislatively allowed to grow ever since. I don’t see anything proposed as being worse than that, and therefore not MORE socialistic. But, when we already have the socialism that Freddie and Fannie represent and the problems they helped create, I don’t see the solutions as “greater” socialism, just more of the same.
Back again to your first point: about how much of the problem could be settled favorably, in time; and since many “economists” agree with that, then we could suggest that since we (taxpayers) will hold $700 billion of it at today’s price and it could, when it all settles, be worth more than a trillion, we could suggest that the $700bn investment we are buying be placed in the Social Security “trust fund” accounts and $700 billion of Treasury IOU’s sitting there be retired.
“Me thinks this group of ‘economists’ have a non-economic agenda.”
Think again. Surely, these economists may be socialists (most professors are), but the socialist solution to this problem would be to pump more money into the system. Opposing the bailout and letting bad investments liquidate themselves is the most “free market” thing you can do. This point, especially, underlines their point:
“Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America’s dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.”
Causing the currency to collapse through inaction would be disastrous. However, there is no guarantee that this particular bailout plan will save anything. What good would buying mortgages up above market value do when there is nothing to stop another false boom from revisiting us in a few years?
“Lots of people from Chicago school of Economics which is the most pro-market school there is from what I know”
Wrong. It’s the second-most pro-market school, after the Austrian School.
“GOVERNMENT created the crisis, so of course government should try to correct it.”
I’m not entirely sure how you can solve a problem by doing more of the same thing that caused the problem in the first place.
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