Consensus crisis: Everything you wanted to know about the bailout

September 28, 2008

Emergency Economic Stabilization Act of 2008

Here's the full text: Emergency Economic Stabilization Act of 2008.

Here's the CBO analysis of the proposal.

I'm with everyone else. The proposal could be better, but as I've argued all along, the problems are real and if this is the best we can get - and it appears that's the case - then it will have to do.

Others: Paul Krugman (2, 3), Brad DeLong, Economists' for Obama, Interfluidity, Justin Fox, Adam Levitin, Larry Summers, Barry Eichengreen. Extra: Understanding the TED Spread.
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September 29, 2008
By: Hilzoy

Bailout: The Final Bill

I don't think our Congress has faced a more important decision than whether or not to pass the bailout bill in decades, perhaps longer. (Summary here; CBO analysis here.) To state what is beyond obvious: it is incredibly important to set aside our preconceptions, whatever they may be, and really think hard about whether to support this bill or not. If you're easily alarmed by predictions of disaster, think long and hard about how long it will take to pay this off. If you're inclined to think that experts telling you that you need to fork over large sums of money are necessarily wrong, go back and listen to the audio clips near the end of my last post. Look at the graphs and the pictures. Think hard.

The costs of being wrong, in either direction, are staggering. This is not a time to leap to conclusions.

It is also, in my judgment, not a time for those of us who are not professional economists to imagine that we can sort things out without expert advice. I have read some bloggers who have no background in economics or finance, who are nonetheless sure that there is/is not a crisis, or that the bill under discussion obviously is/is not necessary. We're lucky enough to live at a time when experts provide good analysis very quickly. We should use it.

(Note: of course I'm not suggesting that anyone mindlessly defer to experts. I just think that questions like: what is likely to happen if we don't pass this? are more likely to be answered correctly by people who knew what the TED spread was before a few months ago. It's a judgment call, and one that requires a fair amount of sophisticated knowledge. I am of course trying to understand it as best I can. But I am not under the illusion that I could arrive at a view I feel real confidence in on my own. I feel sort of the way I might if I had to decide between two courses of action, each of which might turn out horribly, and which was right depended on the solution to some completely novel problem in theoretical physics. I might end up solving that problem all by myself, despite the fact that I last took physics in high school, but I'd be a fool to count on it, and an even bigger fool if I simply assumed that the totally awesome solution I just thought of was necessarily right.)

In considering the opinions of experts, it is of course important to restrict oneself to their opinions on the present bill. Thus, the Chicago economists' letter is not relevant at present: it concerned the plan Paulson proposed, which is now dead.

The problem, of course, is that the experts are divided. For instance: Paul Krugman (and again), Brad DeLong (as of Saturday, but the outlines were clear then, and he has not taken it back), Lawrence Summers (ditto), and Mark Thoma think it should be passed, though none of them seems particularly enthusiastic. Nouriel Roubini is against it, and while Dean Baker hasn't expressed an opinion on this particular draft, if his earlier comments are any guide, I imagine he'll oppose it.

For my part, I support it. There are a lot of people who I respect who are genuinely worried that we might be on the brink of a serious depression, and who think this would help avert or mitigate it. But I hate this.

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EQUITY, NOT "CASH FOR TRASH" IN BAILOUT

Kucinich Announces Plan for Ownership Society

Washington, Sep 22 -

Congressman Dennis Kucinich (D-OH) today made the following statement announcing a plan for a new Ownership Society:

“The Wall Street financial disaster is an opportunity to create a genuine ownership society. If Congress invests $700 billion in the market, then the American people must get something of real value for their investment.

“Simply purchasing bad debt, "cash for trash" and not receiving anything of value or giving $700 billion and not having a commensurate equity interest in Wall Street firms is unacceptable. No "cash for trash".

“Since the bailout will cost each and every American about $2,300, tomorrow I will offer legislation to create a United States Mutual Trust Fund, which will take control of $700 billion in stock assets, at market value and not higher, convert those assets to shares, and distribute $2,300 worth of shares to new individual savings accounts in the name of each and every American.”

Kucinich arrived at the $2,300 figure by dividing the cost of the bailout ($700 billion) by the US population (over 300 million).