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  • (Lots of) Economists Calling for Full Consideration of Paulson Plan

    Posted by Chicago Boyz Archive on September 25th, 2008 (All posts by )

    Here.

    …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.

    Yeah. Look before you leap. A trillion here, a trillion there, you are talking real money.

    Full text below the fold.


    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)

     

    18 Responses to “(Lots of) Economists Calling for Full Consideration of Paulson Plan”

    1. Ralf Goergens Says:

      SUBJECT: REQUEST FOR URGENT BUSINESS RELATIONSHIP

      DEAR AMERICAN:

      I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.

      I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE MOST PROFITABLE TO YOU.

      I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT IN THE 1990S. THIS TRANSACTIN IS 100% SAFE.

      THIS IS A MATTER OF GREAT URGENCY. WE NEED A BLANK CHECK. WE NEED THE FUNDS AS QUICKLY AS POSSIBLE. WE CANNOT DIRECTLY TRANSFER THESE FUNDS IN THE NAMES OF OUR CLOSE FRIENDS BECAUSE WE ARE CONSTANTLY UNDER SURVEILLANCE. MY FAMILY LAWYER ADVISED ME THAT I SHOULD LOOK FOR A RELIABLE AND TRUSTWORTHY PERSON WHO WILL ACT AS A NEXT OF KIN SO THE FUNDS CAN BE TRANSFERRED.

      PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO WALLSTREETBAILOUT@TREASURY.GOV SO THAT WE MAY TRANSFER YOUR COMMISSION FOR THIS TRANSACTION. AFTER I RECEIVE THAT INFORMATION, I WILL RESPOND WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT THE FUNDS.

      YOURS FAITHFULLY MINISTER OF TREASURY PAULSON

    2. Mrs. Davis Says:

      Home Run Ralf.

    3. Chinese Spammer Says:

      I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT IN THE 1990S. THIS TRANSACTIN IS 100% SAFE.

      [Important spam message deleted.]

    4. Ginny Says:

      I’m sure most of us would feel more secure if Frank, Dodd, and Obama supervised these funds; I’m sure it was their extraordinary abilities in this line that led them to so efficiently counter the attempts by Bush, McCain and Greenspan to reign in Fanny & Freddy.

    5. LotharBot Says:

      Looks like you got a spambot… Mr. Oriental Characters is just copy/pasting segments of other comments and linking to probably-questionable sites.

    6. John Jay Says:

      Stainless steel reaction vessels and board-type membrane filtration devices?????

      That’s what the Chinese characters say, and apparently that’s really what the websites are selling.

      Someone needs to smack some Chinese “marketers” with a clue bat, because I might conceivably be in the market for something like that in the future, but if I’ve seen their company on comment spam….

    7. Carl Ortona Says:

      uhhmmm, so, i guess, there isn’t a problem. glad to know that someone spammed this thread and eo ipso, that means we shouldn’t worry about a couple small banks that were shorted (you know, AIG, Fannie Mae, Freddie Mac, Lehman, etc). wait; chicagoboyz … i was hoping to get some ersatz discussion of whether swaps that are neither insurance nor futures contracts can screw all of us and therefore elude market scrutiny (until too late) … i did political science, not econ or finance or business, so have remained silent as have nothing to say that is relevant. is there anything to say or hope for, or should we hope giving sweeping ‘war powers’ to treasury and Sec… no, wait…. just wondering about the curious silence from one of my fav sites

    8. Lexington Green Says:

      Carl, I am sitting it out because it is beyond my competence to understand.

      I do not like the rush job, though. Smacks too much of a street hustler’s approach.

      This piece, by one of our fellow U of C alums, scared the crap out of me. Fortify yourself, sir, fortify yourself, before reading. I recommend a stiff shot of something, with our without ice.

    9. Ralf Goergens Says:

      Mrs davis,

      it actually was just copy and paste; I don’t even know who the original author was ;)

    10. Chris Says:

      I personally see this as a good thing, whether they bail out or not. On the one hand, I am sitting on a precarious housing market about to really bust in Hawaii and waiting to buy my next home, so a meltdown of sorts especially in the lending business will help that…on the other hand if they do go through with a bailout, then I will console myself with the morons who think this is “all Bush’s fault” becoming apoplectic.

    11. Gottafang Says:

      I’m starting to think more and more that this bailout “deal” is, indeed, a rush job that’s conveniently trying to happen during an election year. The most unproductive Congress in years is trying to show its relevance, and the MSM is trying to parlay this into Finger-Point-O-Rama to scare us out of our skins.

      So why not do as the experts quoted above said: hold hearings, drag a few Fannie Mae fannies into a hearing room and hold them to oath, and do it all right now.

    12. fred lapides Says:

      All well and good to badmouth the Congress but they are the ones who will have to come up with some solution to what both sides of the aisle now see as a most serious situation. Many Republicans in the House are slowing things down, or seriously objecting and want to include such things as capital gains changes–which of course is not what this is all about. Shelby walked out and said he will have nothing to do with this bill. Golly, but he is on the banking committee!

      McCain and Obama are not needed there. They will make a political thing of what ought at this point not involve presidential politics and they are not either one of them on the committees in charge and doing the work. Bush should not have invited them, though McCain seems to have invited himself.

    13. Jonathan Says:

      Congress is a large part of the problem. In particular, the financial geniuses Dodd and Frank for years encouraged reckless mortgage lending and blocked reform of the corrupt Fannie Mae. The Bush administration attempted on multiple occasions to reform Fannie Mae and was blocked by Congress, mainly Democrats. McCain supported reform of Fannie Mae and investigation of corruption. Obama took campaign contributions from Fannie Mae.

      Readers are invited to check my assertions.

    14. frossjohnson Says:

      “A trillion dollars are lost in the sands of time.” – F. Ross Johnson

    15. Ginny Says:

      For those of us who find visuals helpful, here are some examples that prove Jonathan’s point. Another place to go is Gigot’s “The Fannie Mae Gang.”

      In my naivete, I thought it was great so many Americans were moving into houses. I wasn’t wrong, but the question is how. In my even greater naivete, I assumed they were paying 10% down and carefully figuring out their ability to pay, aided by lenders who encouraged sensible management, since, I stupidly assumed, they didn’t want to eat those mortages.

      But, then, besides knowing next to nothing about economics, I kept my bank account in the same village bank in my home town long into my marriage – the bank where I knew everyone who worked there and they all knew me, the bank that if I bounced a check phoned my parents to cover it, the bank that gave me a free checking account because I delivered papers. I still have that picture of banking, even though the one I borrowed money from for my business has gone through endless name changes in the last twenty years. Of course, it is cheering that the old small banks appear to be weathering this period better than some of the big ones. Knowing your clientele is not a bad beginning to good banking.

    16. Orson Says:

      BUT ISNT the bailout (TM) REALLY JUST FRIEDMANITE MONETARISM?

      ‘a reader [of Instapundit.com] named Matt writes:

      ‘Since when did Republicans stop believing in monetary policy? Yes, the plan is expensive…but the idea that allowing asset deflation on a massive scale is good for the economy in the short or long term because its “markets working their magic” isn’t just asinine; it’s been disproven.
      The Great Depression went from a correction to a Depression because the Federal Reserve applied a laissez-faire attitude to bank failures all across the country, thinking it would cleanse the bad, inefficient players from the market like any other market. Except it didn’t.

      ‘All that’s different now is that no one keeps their money in banks anymore; it’s all tied up in pension funds, money market accounts, and 401(k)’s, so we need more than just the FDIC and the Fed now that we’ve been caught off-guard. This isn’t a failure of capitalism, nor is the rescue plan a form of socialism. Its monetary policy, the same kind every capitialist since Milton Friedman has articulated. Credit is not a market like any other. Credit is the lifeblood of capitalism, and America needs a transfusion.

      ‘Sorry. I’m a long-time reader, love the site, but the Republicans don’t realize the madness they’re advocating.’

    17. Vince P Says:

      I’m not an economist.. just someone who reads a lot.

      I read the reason the Depression was so long and deep was because of the Govt’s raising of taxes as well as its restrictions on trade.

      This inhibited economic activity, and it’s only through transfer of liquidity via trade that an economy creates wealth.

      What scares me is that the “bailout” bill might be exactly what is needed (I have no way of judging this)… but unfortunately we have half-wits like Pelosi, Reid, Frank, Schumer, Dodd in positions of power.

      Could there be any worse time in history to have Congress be in the hands of these shrill and unserious people? Yet another reason to be resentful toward the Republicans for doing what they did to lose power.

      I fear our enemies are laughing their butts off as the stupid control the Congress and the incompetent are in the White House and the Clueless are running for Presidnet.

    18. Orson Says:

      “Be careful what you wish for….” These economists (above) are breathtakingly ignorant. Didn’t economic historian Robert Higg’s teach us how crisis leads to the expansion of government – permanently? He does in “Crisis and Leviathan.”

      Free markets cannot work when liquidity is frozen. Currently, it is the almost unpricable asset class called securitized mortgages (NINJA loans-No Income No Job or Assets and the like), which our government legitimized through being re-elected and being backed by Freddie Mc/Fannie Mae.

      As Warren Buffet said last week, “if people are rational” in a cost-benefit way, “they [the government] will pass” the Paulson rescue of the financial system. So why must we be irrational?

      The money and credit system is already socialized. IF people don’t trust the system that serves as the lifeblood of capitalism, then why should we be surprised when people rebel against capiatlaism as unworkable? We shouldn’t – and I won’t.

      Think of all that ’90s moral capital squandered by winning the many decades long Cold War: only capitalism works. Well, what if it doesn’t “work” – again. “Those who fail to understand history are condemned….”