The Bailout Plan Is Not a Cure-All But It Could Help

Excerpt from Raymond James Economist Dr. Scott Brown's latest economic commentary:

There was a lot of misunderstanding and misrepresentation of the Treasury’s draft proposal. The primary goal is not to bail out “Bush’s friends” or “Paulson’s golfing buddies.” Some individuals and companies will benefit (for example, Warren Buffet, following his investment in Goldman Sachs). Rather, the bailout plan is meant to prevent the economy from weakening a lot more. Critics of the Bush Administration have had a lot to quibble about over the years, but Treasury Secretary Paulson’s heart is in the right place on this one. He is focused on the greater good.

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The draft plan, as submitted by the Treasury, was a bare bones outline. Treasury did not slap it down and say “take it or leave it.” In congressional testimony, Paulson welcomed a number of additions to the proposal. In the draft plan, Treasury wrote of the need to make decisions authorized by the plan “non-reviewable and committed to agency discretion” and stated that they “may not be reviewed by any court of law or administrative agency.” That sounds sinister, but is largely financial legalese designed to prevent interference in the mechanics of the plan. If the Treasury is buying securities, it can’t have someone second-guessing the decision to the point where these purchases are nullified. That requires some trust. However, that doesn’t preclude someone from looking over Paulson’s shoulder. Indeed, in his testimony, Paulson welcomed such oversight and the general Agreement on Principles hammered out by congressional leaders stipulates a number of measures on oversight and transparency (ensuring the proper use of funds and preventing waste, fraud, and abuse).

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So what happens when the plan passes? The economy will still be weak in the near term. Credit conditions have been strained in recent weeks, but should begin to relax over time. Growth will still be weak in the near term (real GDP growth is increasingly likely to be negative in the third and fourth quarters). The economy will continue to shed jobs. The unemployment rate will head higher. However, things would be much worse in 2009 if the plan isn’t passed.

Comments

[cjct:]

Well thought-out... I don't think anyone behind the TARP actually thinks this a panacea for all that ills the US economy, but that is not a legitimate reason not to pass it. At this point any measures that help ease the freeze in inter-bank lending, however incremental these benefits might be, should be supported. I hate the reasoning offered by some legislators as to why they won't vote for the plan, "It's not guaranteed to work"...NEWS FLASH CONGRESS...nothing in life is full proof... The American Revolution wasn't a guaranteed success, does that mean the founders shouldn't have supported it?

2008 Oct 02 04:59 PM