Country's top economists advise Pelosi to say No to Paulsen bailout

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)


http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm

The GOP had some list of "Nobel scientists" who dissented with the idea of a man-made global warming thing and then it turns out that a majority of them had their names added for erroneous reasons or without permission and even when they asked to have their names removed, the list still remained as is. Also, I'd rather an intelligent dissent other than just a list of doctorates/scholars since these people would be best equipped to do so.

I'm sorry but I need this list itself to be confirmed with additional research too-- just to confirm that these people actually approve of having their names on the list. My distrust of the government and the media is such that I need independent activist research into documents that people want me to trust at face value.

Anyone can make a list...I hope there is some investigating done to confirm.

http://209.157.64.201/focus/f-news/2090307/posts

in the approval or disapproval of this plan.

Sorry but this is a legitimate concern I have about this list. You can try to trivialize my concern by saying I'm being like a freeper troll but I also don't try to demonize people based on their associations until they've proven themselves to be insane (granted, it's a lot easier to make that snap judgment with most of the freepers). Even the most insane have their moments of clarity. Just saying.

I agree that this is a bipartisan issue, and a very serious one at that.

I thought it ironic, however, that to your comment: Is this the same as when the Republicans listed scientists who were against man-made global warming?

A freeper responds to the same list of Economists posted with his/her 'version': I could post a list of 900 scientists who concluded man was responsible for global warming. Does that make it true?

Quite telling how the same information is received with criticism, yet the critiques are so polar opposites.

My intent was certainly not to insult you - I find no issue with your comments, nor do I think you were being freeper-like. On the contrary, I only was pointing out the absurd alter ego position over at the other website with regard to the opposite position on global warming.

Sorry eshfemme, I should've been clearer in my post

I just wanted the problem I had with this list addressed and I apologize for overreacting too.

I think it's probably because the freepers are such a huge source of deserved ridicule that I thought the comparison was meant to be mocking but I see that it is not. Thanks for clarifying. :)

And yes, the freeper reply on that is weird when the same anti-intellectual GOP Rep from Alabama is using the very same tactic that the freeper is deriding. It's all just weird.

Seriously, the field isn't an exact science, and many economists have crackpot theories on how the world should work and political agendas.

There are some good economists out there, but just because you have a degree, doesn't make you an expert on government policy.

http://executivesuite.blogs.nytimes.com/2008/09/25/economists-of-the-world-unite/

:kick:

GOP doctors Nobel list to kill global climate change initiatives vs. Economists from the top colleges and universities in the nation protest the economic plan trying to be shoveled through by the GOP.
:dilemma:


My guess this list of these "liberal elite academics" is the real deal. Our side doesn't have to lie. If you can name a comparable ploy by Dems or progressives in the last decade, I'd like to hear it. Otherwise, this is just casting aspersions on what is most likely a valid statement from people who understand economics much better than Paulson. Bogus names on a list is very Rovian, and I don't think any progressive would stoop this low to make up a list of people who are really just talking economic common sense.

that he claimed had all these economics experts from all these elite colleges that they normally sneer at. So that's why I'm skeptical about the source of this.

I'm open to hearing this dissent but I'd rather that there be an actual logical argument for why the bailout is bad other than it gives money to Wall Street because that's political rhetoric that's not cutting it for me anymore. So if it's really economists who say this, I want to know why so I can be more well-informed.

It was in the position paper the economists allegedly signed onto.

You're citing THAT as the cause of your concern over this list of economic professors objecting to the bailout. Look, once you say "Alabama" and "Republican" in the same breath, you know it's fraudulent right off the bat. Meanwhile, this list was not touted by any Democratic candidate or office-holder, so your comparison of the two still seems like a stretch.

But just to make you feel better, here's a link to the University of Chicago's School of Business with the same info as the OP, posted on signer John Cochrane's faculty page. That should validate the list for you, O Doubting Thomas.

I'm not kidding you:

http://www.oism.org/

It's somewhere out and around Cave Junction.

Kinda wanted to go and have a look, but my SO wasn't having any of it.

:spank:

Message removed by moderator. Click here to review the message board rules.

:wtf:

No Krugman on that list, besides they are beyond the Paulson proposal now they are looking at Dodds.

She saying something along the lines that she doesn't have time for academics.

(So true. And it shows Nancy.)

who, along with new populist John McCain, torpedoed the deal today???

The ones who presented their own plan (soon to be the McCain plan) to eliminate the capital gains tax for investors, declare a two year moratorium on ANY corporate tax, asks for further radical deregulation of the financial markets, all in an attempt to attract the needed hundreds of billions from a newly energized "private sector". They also came out and said that they had hundreds of economists that opposed the bail out plan. Same list?

mention that they support McCain's.

House Repuke Alternative (soon to be called the McCain Prosperity Bill or something like that)

other than copy & paste.

A Bailout We Don't Need

The point of the bailout is to buy assets that are illiquid but not worthless. But regular banks hold assets like that all the time. They're called "loans."

With banks, runs occur only when depositors panic, because they fear the loan book is bad. Deposit insurance takes care of that. So why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory? If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately. If it isn't, the FDIC has the bridge bank facility to take care of that.

Next, put half a trillion dollars into the Federal Deposit Insurance Corp. fund -- a cosmetic gesture -- and as much money into that agency and the FBI as is needed for examiners, auditors and investigators. Keep $200 billion or more in reserve, so the Treasury can recapitalize banks by buying preferred shares if necessary -- as Warren Buffett did this week with Goldman Sachs. Review the situation in three months, when Congress comes back. Hedge funds should be left on their own. You can't save everyone, and those investors aren't poor.

http://www.washingtonpost.com/wp-dyn/content/article/20...

:yourock:

Maybe I missed that.

And NO, Chicken Littles, the sky will not fall. We will liquidate the bad companies, and the new companies will be stronger. Yes, if someone invested in the markets and their companies goes belly up, they lose their investment. That's called RISK. If you want a safe return, don't bet the bundle in the stock market.

Just bet our Social Security there.

It's enough to make you want to go back to college!

I find it ironic that Sam Peltzman is on the list, who insists that people act recklessly when faced with new regulations.

From Marginal Revolution:

True just sending money is not incentive compatible. But there is no reason to bail out homeowners. Just intervene in any mortgage default. Seize the property and continue making the mortgage payments. In the short run rent the property back to the homeowner.

This is what I have been advocating to my colleagues. I don't know why it is not under discussion. Before going with the arbitrary implememtation that Paulson is proposing now there should be some convincing argument that it's more efficient than this alternative. It is clearly the most direct approach and therefore should be the default (so to speak.)

So, we buy up all the banks or we buy up all the houses?