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Why $700 billion? They "wanted to choose a really large number"

by: desmoinesdem

Sat Sep 27, 2008 at 20:15:52 PM CDT


I stand by my contention that Treasury Secretary Henry Paulson's bailout scheme is among the worst proposals to come out of George Bush's very bad presidency.

So I am glad to learn that Iowa Treasurer Mike Fitzgerald wants some questions answered before urging Congress to pass the bailout. Click the link to read Marc Hansen's column about a conference call Fitzgerald and other state treasurers had on Thursday with acting U.S. treasury undersecretary for domestic finance.

I am no economics whiz, but I can help answer Fitzgerald's first question:

Why $700 billion?

From his office at the Capitol, Fitzgerald listened intently, waiting for the answer that never came. And what did he get instead?

"Nothing," he says, "other than a lot of babble."

What's so magical about $700 billion? Fitzgerald still doesn't know. It's about 5 percent of the gross domestic product, if that means anything.

"Magical" is a good word for the number, because as it turns out, they just made it up.

I know this because a few days ago, Open Left diarist fladem posted this link from Forbes magazine:

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

David Sirota has written two good pieces quoting Nobel prize-winning economists and others on why there is no crisis requiring a bailout package. Here is part 1, and here is part 2.

In an alternate universe where John Edwards hadn't disgraced himself, he could have been an effective voice against the rush to shovel taxpayer dollars to Wall Street.

Instead, we have Barack Obama's campaign letting Roger Altman speak for them in favor of Paulson's scheme. That's

the same Roger Altman who was a Clinton Treasury official when the Clinton-backed deregulatory orgy was taking place, the same Roger Altman who is now an investment banker who stands to make bank if this bailout passes, the same Roger Altman who Bloomberg notes "is advising a group of investors who are trying to prevent their shares from being diluted in the U.S. takeover of American International Group Inc." - that is, who have a direct financial interest in Paulson's bailout package.

Watching this train barrel down the track is quite discouraging.

desmoinesdem :: Why $700 billion? They "wanted to choose a really large number"
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bailout (0.00 / 0)
And I stand by my earlier statement that I don't like this bailout much at all, but that it is probably necessary. I'm no expert in the economy...but I do know that if all of these banks crash and burn, there will be no money to loan. If there is no money to loan, then small businesses won't be able to borrow money to grow and people will be out of jobs. Those people won't spend as much, more businesses will fail and more people will be out of jobs. I could care less if some day trader on wall street is out a bunch of money. But I do care a lot if unemployment spikes, because one of those unemployed could be me.

I don't believe in blind trust in congress, the senate, or the president. However, I do believe that they have more information about this than I do. And if the majority of them do pass this hugely unpopular bill 38 days before an election, then I believe that they must see it as crucial--or they simply wouldn't do it. I hope the democrats will be able to get things added to the bill, such as a way that we can sell the stock once the market stabilizes and we can get some of our money back. I also hope they will be able to keep the House Republicans from adding goofy stuff like capital gains tax holidays which would just encourage people to sell their stock and make the market go down.

Honestly, I am not unhappy at all with the way that Obama has reacted to all of this. In fact, I have gained more confidence in him in the last few days. McCain tried to swoop in on his white horse and save the economy, even though he isn't on any of the relevant committees. Obama said that it probably wouldn't help delicate negotiations to bring a couple of presidential candidates and swarms of reporters into the mix (and turns out he was right).


I encourage you to read the Sirota pieces (0.00 / 0)
A lot of very smart economists think A) there is no need for this bailout, and/or B) the Bush administration proposal would do nothing to help the situation.

I think Obama hasn't played it badly in a political sense, but he is going along with something that will severely limit his ability to accomplish anything on domestic policy goals if he gets elected. Perhaps that (along with enriching his buddies) was one of Paulson's key motives.

Newt Gingrich has predicted that a couple of years from now, this bailout will look like an expensive failure and will be a political liability to all who supported it. I think he is right.

Invite other Iowa political junkies to join us at Bleeding Heartland.


[ Parent ]
Sirota (0.00 / 0)
I did read the Sirota pieces, but that doesn't mean that I agree with them. They took several quotes from a Washington Post article, http://www.washingtonpost.com/... but left out quotes such as this:

Economists tend to agree that the nation's economy is at serious risk as the flow of credit threatens to freeze. Just yesterday, the interest rate at which banks lend to each other rose steeply, as it has every day this week, suggesting that lenders are hoarding cash. History shows that when this happens, a broad economic crisis can follow, for instance, the Great Depression and Japan's decade-long recession in the 1990s.

and

"If nothing is done, the potential for these markets to seize up in a big way is definitely there," said Frederic S. Mishkin, an economist at Columbia University who was a Federal Reserve governor until last month. "When you look at the history of these crises, when things spin out of control, the cost to fix it later goes up exponentially."

Nobody can really predict the future, but I continue to believe that this is an economic crisis and that the government needs to take action.  


[ Parent ]
Well (0.00 / 0)
I also think McCain really blundered by going to Washingto to try to save this and than going back on his word and going to the debate. McCain really hasnt shown much integrity

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