Two Top Progressive Economists Reject Bailout; Krugman Wants to Spend the Same Money Twice

[clear eye]

A Better Bailout" by Joseph E. Stiglitz {2001 winner of the Nobel Prize in Economics}

http://www.thenation.com/doc/20081013/stiglitz
"Paulson and others in Wall Street are claiming that the bailout is necessary and that we are in deep trouble. Not long ago, they were telling us that we had turned a corner. The administration even turned down an effective stimulus package last February--one that would have included increased unemployment benefits and aid to states and localities--and they still say we don't need another stimulus."

snip

"The administration is once again holding a gun at our head, saying, "My way or the highway." We have been bamboozled before by this tactic. We should not let it happen to us again. There are alternatives. Warren Buffet showed the way, in providing equity to Goldman Sachs. The Scandinavian countries showed the way, almost two decades ago. By issuing preferred shares with warrants (options), one reduces the public's downside risk and insures that they participate in some of the upside potential. This approach is not only proven, it provides both incentives and wherewithal to resume lending."

snip

"There are four fundamental problems with our financial system, and the Paulson proposal addresses only one.....The Paulson approach solves this by passing the risk to us, the taxpayer--and for no return."

snip

"If we design the right bailout, it won't lead to an increase in our long-term debt--we might even make a profit. But if we implement the wrong strategy, there is a serious risk that our national debt--already overburdened from a failed war and eight years of fiscal profligacy--will soar, and future living standards will be compromised."
________________________________________________________________________________________________________________________________________________

"The Bailout Round II: Adult Version?"
By Dean Baker {Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR), and an NYU professor of economics}

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/the-bailout-round-ii:-adult-version/

"The main reason that banks won't lend to these families is that they no longer have home equity to serve as collateral. It wouldn't matter how much money the banks had, they are not going to make mortgage loans to people who have no equity."

snip

"The weakness of the banks contributes to the downturn, but they are not the core of the problem. We would still be facing a recession even if all our banks were flush with cash. Hence the hype about the urgency of the bailout was an invention. It would be good to get our banks in order, but it also would be good to send $100 billion to state and local governments to support infrastructure projects and other spending."

snip
"How do we go about getting the banks in order? Almost every economist I know rejects the Paulson approach and argues instead for directly injecting capital into the banks. The taxpayers give them the money and then we own some, or all, of the bank."
_______________________________________________________________________________________________________________________________________________
In "What Nobody's Saying: The Bailout Will Kill the Dollar" http://www.smirkingchimp.com/thread/17346
Dave Lindorff, Knight-Bagehot Fellow in Economics and Business Journalism at Columbia University in 1978-79, says

"But besides the direct bill handed to taxpayers for this gigantic con, there is the fact that adding that much to the national debt is also going to drive the dollar down precipitously against foreign currencies. We're already seeing that happen, even while they're just talking about the bailout. The dollar is falling against all major currencies--the Euro, the Yen, the Renminbi and the British pound. And it will continue to fall as the details of the bailout come out."
________________________________________________________________________________________________________________________________________________
By contrast, in this evening's Countdown with Keith Olbermann, Paul Krugman says he's "in the hold-your-nose-camp", thinks the bill "will be relatively ineffective" and "We will revisit it in January." This despite a consensus of just about all economists for or against who say that we have one chance to get it right because this bill will use all our Treasury's remaining borrowing power.

[liberalmuse]

1. I deeply respect Krugman.

He's not wrong very often.

[clear eye]

3. He takes both sides on this; he can't be wrong

If it's a disaster, he can point to his comment about it being ineffective; if it works at all, he can remind people that he was for it. He also avoided any explanation of how we can revisit it in January without money. When this thing tanks and takes our economy down with it, Obama and his advisors will be flailing around trying to revist both the failing economy and the renewed bank crisis (after all, banks don't succeed in hard times), but as our government struggles to find a way to pay for desperately needed measures, no one will remember that Krugman blithely suggested revisiting the issue after Treasury spent everything. What's to respect?

[Hydra]

2. If we only have one chance

They're going to hand that chance over to Bush...who thought this was a good idea, again?

[Geek_Girl]

4. I'm beginning to believe Paul Krugman is a dem shill

His opinions seem to sway more in line with the policies of the dems IMHO. Quite frankly I think thats a shame he's a better economist than that. But then again after 8 years of bush Dems could use some shills.

[kenny blankenship]

5. Do the brainiacs explain how you get Republicans to vote for Swedish Socialism?

I'm dying to know how that would work.

[clear eye]

6. How politicians have always passed bills, by including enough

of the skeptics' favorite provisions to get them on board. Remember, the majority of Republicans are against the Paulson bill already. If the bailout provisions were reduced significantly, spending it as equity purchases in the financial institutions would be less objectionable to them, and adding measures that they have been calling for would sway most of them. They know that something has to get passed, and that in the end Dems are the majority in the House. BTW, the House could pass a bill w/o any Republicans.

And Kenny, before I open a thread on a blog, I both research and think about it, so calling me and the economists I've quoted names is not going to work.

[kenny blankenship]

7. Republicans in the House and many in the Senate too would burn this country down

before agreeing to the government taking a big equity position in the banks. Write that down. If nationalization of /socializing the banking industry came to pass then everything they say they believe in has been shown to be a lie. They would have NOTHING as a party anymore (except the gay-hatred and foetus fondling). They consider themselves saints and heroes for saving America from Russian Communism and European Socialism and that's how they've marketed themselves since the 19th century. I've said before that I believe most Republicans to be nihilists, but that doesn't mean they act without limits. They will not be humiliated in front of their constituencies. Like a lot of people around here they would rather let it all burn to the ground.

You could take a Swedish style proposal written by Soros or Stiglitz and present it to our Republicans, sweetened up with all the cocaine and naked Congressional pages to be found in the District of Columbia, and you would still fail to gain the necessary numbers of Republican votes.

There is the possible and the impossible; and as long as THIS Congress is seated with THESE Republicans in it, proposals like Soros' or Stiglitz's are impossible.