Tuesday, September 30, 2008

Dear Madame Representative

Dear Madame Representative,

Thank you for keeping the interests of the 99th District in mind in your consideration of the various Wall Street bailout proposals.

As a local taxpayer and economist by profession, I am concerned that Congress has been deceived by Wall Street. Wall Street and the finance industry claim that lending is crucial to American businesses everywhere. This is true enough. They also claim that an enormous bailout would solve the problem. This claim is not true.

If Congress gives $700 billion to Wall Street in exchange for worthless assets, where is the $700 billion going to come from? In the long run, from taxpayers like me. In the short run, it has to come from lenders. If the Federal Government is sucking $700 billion out of lending markets in the next year, lenders won't be able to loan that money to businesses that create jobs! What's more, the move will raise interest rates, making borrowing more expensive and dampening lending further.

Even if the government did not have to borrow the $700 billion in the short run, the bailout would probably not prevent a recession. Remember, what brought on this crisis was exuberant lending. No amount of bailing out is going to make bad loans look good to bankers now. An unsound business model is still going to be unsound, even if a government handout allows it to be solvent for a few extra weeks or months.

Suppose I am wrong. Suppose a $700 billion bailout really could prevent a recession. The most severe recession since World War II was the 1973-1975 recession. How much did the economy shrink? By about 5%. In today’s economy, a 5% contraction would be about $700 billion. Spending $700 billion to avoid a recession of less than $700 billion seems like a losing proposition to me – even if the bailout works.

Please vote against any resolutions that will use tax revenues or borrowing to bail out Wall Street.

Thank you for your time and your efforts.


- S***** F*****
Department of Economics
***** University


inos said...


Emily Grace said...

i'm going to repost this because 1) it makes sense and 2) you're my hero for making it make sense. Not that I didn't know it was a terrible idea in the first place, but now I know why.

(I realize that #2 is not a valid reason to post something)

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