Political Physics: The Bitter Bailout Quandry
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A blogumn by Monique King-Viehland
Bail Out Plan – Good, Bad or Ugly, Part II?
As I mentioned last week, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (aka “the bailout bill”). The 451-page law authorizes the United States Secretary of the Treasury to spend up to $700 billion to purchase distressed assets, especially mortgage-backed securities, from the nation’s banks. Supporters of the plan argued that unprecedented market intervention was critical to prevent further erosion of confidence in the credit markets and that failure to act could have lead to an economic depression. However, opponents objected to the massive cost of the plan, the speed with which the bill passed and claimed that better alternatives were not considered.
So, I asked you all what you thought about the bailout bill? Here’s what you said: 80% of you felt that the bail out bill was a bad idea; 64% of you felt that the bail out bill would not have an impact on the economy and 100% of you felt that it was not worth the $700 billion bucks.
Okay, you all are too smart and my job here is done, right? Well, since less than 20 people would probably not be considered a representative sample by most statisticians, I guess I should actually tell you what I think and back it up with some additional data to help bolster your very smart opinions.
The goal of the bailout bill was to jumpstart the frozen credit market by basically buying up devalued mortgages thereby freeing up cash for struggling financial institutions. Interestingly enough, several economists agree with you (and me). In an open letter to Congress sent on September 24th, over 100 university economists expressed great concern over the proposed plan. The letter was endorsed by 231 economists from American universities and described three “fatal pitfalls” of the proposal: (1) Fairness, (2) Ambiguity, and (3) Long-term effects.
In terms of fairness, the economists argued that the plan was basically a subsidy to investors that was being provided using taxpayer dollars. In addition, they believe that the plan was ambiguous as it creates a new federal agency whose mission and oversight are not clearly spelled out in the bill. Lastly, it has far reaching long term implications on the historically strong American private capital market that could be eroded by the new regulations and oversight.
But that’s not all. According to JP Morgan & Chase estimates, the $700 million plan will cost the average American family about $2,300 – think of it approximately 100 million families paying more than $2,000 a piece, and yet many of them will never see a direct or indirect benefit of this plan. Folks will continue to lose their homes, retirement funds will continue to dwindle, gas prices will continue to rise and even with the bailout bill the economy will not see an uptick today, or tomorrow, or anytime in the near future.
Our political leaders – on both side of the aisle – are in such a rush to solve this financial crisis that rhyme and reason have gone out of the window in lieu of quick action (it is a very important election year). The bail out bill is not the panacea, in fact it is a dangerous gamble that will not cure our economic woes overnight and could possibly hurt us even more in the long run.
I really felt that a bail out was necessary but that this bill was the wrong way to go about it. What has happened to our government? Why do they jump into things so quickly (i.e. this or a war…)? When did America become an impulsive, hormonal teenager?
I really felt that a bail out was necessary but that this bill was the wrong way to go about it. What has happened to our government? Why do they jump into things so quickly (i.e. this or a war…)? When did America become an impulsive, hormonal teenager?
Not to split hairs or anything, but the population of the US is 300 million. The number of family units is about 100 million based on this government projection from the US Department of Commerce: http://www.census.gov/prod/1/pop/p25-1129.pdf
Still, yes, I agree that the bailout was a Bad Thing. I find it interesting that the only time government moves expediently is when the pocketbooks of the wealthy are involved, and it is always to their benefit.
Not to split hairs or anything, but the population of the US is 300 million. The number of family units is about 100 million based on this government projection from the US Department of Commerce: http://www.census.gov/prod/1/pop/p25-1129.pdf
Still, yes, I agree that the bailout was a Bad Thing. I find it interesting that the only time government moves expediently is when the pocketbooks of the wealthy are involved, and it is always to their benefit.
Thanks for the correction, Anne. We’ve changed the copy to reflect the correct data. Good looking out.
What is so amazing to me is that they were in such a rush to pass the bill but it doesn’t seem like they are in a rush to distribute the money.
If there is enough time to decide how to spend the money why wasn’t there time to look at the bill itself?
What is so amazing to me is that they were in such a rush to pass the bill but it doesn’t seem like they are in a rush to distribute the money.
If there is enough time to decide how to spend the money why wasn’t there time to look at the bill itself?
Delia, your “impulsive, hormonal teenager” comment is too funny! But your right, we tend to leap (mostly with good intentions) before we look. And the scary thing is that the legislation that tends to be rushed, is always big with far reaching implications. It’s never the small stuff that gets done in an instant.
Anne, thanks for the catch. I meant that there was 300 million people and divided that 700 billion by those 300 million people. But either way it is somewhat inaccurate because its not like all 300 million Americans (or 100 million family units) are taxpayers and even so they share of the tax burden would not be equalized. The example was more about illustrating that however the burden is divided, it will be our burden.
And Christian your right, if we can spend a significant amount of time crafting a 450+ bill, you’d think the same amount of time should be spend doing the proper due diligence. But that is not always how government works and that is compounded by the fact that this is an election year.
Delia, your “impulsive, hormonal teenager” comment is too funny! But your right, we tend to leap (mostly with good intentions) before we look. And the scary thing is that the legislation that tends to be rushed, is always big with far reaching implications. It’s never the small stuff that gets done in an instant.
Anne, thanks for the catch. I meant that there was 300 million people and divided that 700 billion by those 300 million people. But either way it is somewhat inaccurate because its not like all 300 million Americans (or 100 million family units) are taxpayers and even so they share of the tax burden would not be equalized. The example was more about illustrating that however the burden is divided, it will be our burden.
And Christian your right, if we can spend a significant amount of time crafting a 450+ bill, you’d think the same amount of time should be spend doing the proper due diligence. But that is not always how government works and that is compounded by the fact that this is an election year.
Monique,
As your conservative counterpart, I can’t resist tweaking this right-wing opinion of yours. OK, I know that’s a stretch…just don’t throw things at me.
Both parties are content to spend their way to electoral praise, to pretend that one day it will all be paid off, and to make decisions by the all-too-unaccountable “consensus”.
Hormonal teenager? Perhaps we all need to stop by the drug store…
Monique,
As your conservative counterpart, I can’t resist tweaking this right-wing opinion of yours. OK, I know that’s a stretch…just don’t throw things at me.
Both parties are content to spend their way to electoral praise, to pretend that one day it will all be paid off, and to make decisions by the all-too-unaccountable “consensus”.
Hormonal teenager? Perhaps we all need to stop by the drug store…