US economists raise concerns about bailout package

October 3rd, 2008 - 12:34 pm ICT by ANI  

Washington, Oct 3 (ANI): Economists across the board still have a lot of concerns with the financial rescue bill passed by the US Senate.

Interviews conducted with a dozen prominent academic economists, Obama supporters as well as McCain supporters, found little support for the bailout bill.

Indeed, even the one economist who supported the proposal passed by the Senate on Wednesday night had serious reservations, FOX News reported.

Jonathan Berk, an award-winning finance professor at Stanford University and a strong opponent of the bailout plan, expressed the concerns of many: I have never been so frustrated, I have never wanted to speak out publicly before on these political issues, but politicians don”t know what they are doing, they know nothing about these issues.

The economists did not all emphasize the same reasons for the current financial crunch and they all did not agree how serious the problem is. But there are a number of similarities that can be seen in all their answers.

There is little agreement on how serious the current problems are. Take the statements from three of the economists. John Cochrane, a professor at the University of Chicago Business School, worried that the solution was out of all proportion to the problem.

The legislation is like this: some boats are sinking, so rather than bailing those boats out, you blow up the dam and drain the whole lake.

Robert Hansen, senior associate dean and professor at the Tuck School of Business at Dartmouth College, summed up his view this way:

Does this justify some government intervention to jumpstart the market? Yes. Is this the best way to solve the problem? I don”t know. Does this justify this level of intervention? No.

At the other extreme is Daniel McFadden, a professor at the University of California at Berkeley and a Nobel Prize winner. McFadden could not paint the situation in more dire terms:

I think that the U.S. is in the same position as the Soviet Union in 1988. We are about a year behind them when they collapsed. We are one year away from when our economy could not function, that we could not keep order in the country.

The economists offered a range of explanations for the problems, but they did agree on a few things. All were concerned about the way that the government set up Freddie Mac and Fannie Mae, though they did not agree that it should be fixed immediately as part of the bailout.

In addition, most of the economists criticized the federal government for restricting mortgage lenders” ability to require down payments and properly check credit scores, but they were not unanimous on how much of the problem could be attributable to this. (ANI)

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