The story of the day, of course, is the Bush Administration's proposed $700 billion plan to bail out America's ailing financial institutions. Henry Paulson, Secretary of the Treasury, and Ben S. Bernanke, Chairman of the Federal Reserve, have been testifying before what appear to be deeply skeptical Congressional committees on the nature and necessity of the bailout.
Many voices have been raised against the Administration's plan. Among them are a list of economists who signed this petition decrying certain aspects of the proposed bailout. Several of our authors are signatories to the petition. One of them is David K. Levine, of Washington University in St. Louis, who is coauthor of The Theory of Learning in Games. We asked him for a few additional words on the financial crisis and the proposed cure, and he sent us the following thoughts, edited from posts he's done at the Against Monopoly blog.
The original proposal for a bailout says simply that the Treasury secretary is given a 700 billion dollar credit line and told to go out and play the mortgage backed security market, appointing whoever he chooses, and buying and selling without any oversight, concurrent or retroactive. Can I imagine a better prescription for political corruption? I'm not imaginative enough. I'm imaginative enough to think that however good the intentions of the (politically appointed) Secretary might be, the people who do the buying and selling will feel sympathetic to their friends and will want to do what they think the boss man would "want them to do" towards his friends. Some will not give in to the temptation. Others will. And on the other side those who receive lesser bailouts will think that it is unfair and driven by politics - regardless of whether or not it is.
Current negotiations seem to be in the direction of expanding the authority of the Treasury secretary to buy more kinds of securities, and providing a toothless oversight board. This does not seem an improvement.
Hat tip to Brainiac's Chris Shea for noticing the petition.
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