Ten Arguments Against The Bailout

Writing in the Atlanta Journal-Constitution, J. Boyd Page writes:

Reason No. 1: The $700 billion Wall Street bailout is merely a “drop in the bucket.” It will not correct Wall Street’s problems. The government’s suggestion that a $700 billion bailout of Wall Street and its bad investments will somehow solidify the markets is simply unfounded. The true facts show that there are more than $12 trillion worth of mortgages outstanding in the U.S. alone.

Reason No. 2: The bailout plan smacks of cronyism. Treasury Secretary Henry Paulson and many of his chief advisors are Wall Street alumni. Paulson’s close relationship with the Wall Street community strongly suggests ulterior motives may impact his recommendations.

Reason No. 3: Paulson and Federal Reserve Chairman Ben Bernanke do not understand the problems confronting the American economy and are not qualified “to be king.” Dean Baker, co-director of the Center for Economic and Policy Research in Washington, stated: “This administration is asking for a $700 billion blank check to be put in the hands of Henry Paulson, a guy who totally missed this, and has been wrong about almost everything.”

Reason No. 4: The bailout plan proposes to give Paulson unfettered discretion to do as he sees fit with no accountability to anyone and no review of his actions by either courts or administrative agencies. To create a “get out of jail free” card for anyone associated with the proposed bailout offers unlimited possibilities of abuse.

Reason No. 5: The Wall Street bailout plan is a “knee-jerk reaction” and there may well be better alternatives for spending $700 billion of taxpayer money. The $700 billion plan is aimed at a very small segment of American employees — generally the group of people who have earned excessive income over many years and who live in “ivory towers.” Alan Meltzer, a economic advisor to President Ronald Reagan, summarized the situation saying, “This is scare tactics to try to do something that is in the private but not the public interest.”

Reason No. 6: President Bush and Paulson have proposed a bailout plan even though they have no idea of what to do. Prior to committing $700 billion of taxpayer funds, our government should at least have a plan on what is going to be done with the money.

Reason No. 7: The bailout plan will undoubtedly result in a weaker dollar with many adverse consequences for the American economy. David Woo, the Global Head of Foreign Exchange at Barclay’s in London, stated that “the downdraft on the dollar from the hit to the balance sheet of the U.S. government will dwarf the short-term gains from solving the banking crisis.”

Reason No. 8: The bailout plan is unlikely to avoid a recession. Even experts who suggest there are long-term benefits to a bailout plan note that it could take the better part of a decade before beginning to show any impact on the U.S. economy.

Reason No. 9: There is no transparency to the bailout plan. Lack of transparency is one reason our economy is in the position it finds itself today.

Reason No. 10: Under the bailout plan Paulson and Bernanke intend for the U.S. to pay above- market prices for the assets that the country buys. Bernanke is urging that any bailout plan buy illiquid assets at values above those for which they could be sold on the open market. In other words, Bernanke wants the American people to overpay for Wall Street’s illiquid assets.

Sound like a good idea to you? It doesn’t to me.