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BK Magazine The Opinion Pages
Posted by Jeevan Sivasubramaniam, Managing Director, Editorial, Berrett-Koehler Publishers Inc.
Larry Mitchell is a leading scholar in the field of finance and corporate law and a professor at George Washington University Law School. He gives us five reasons the bailout was a bad idea for us all:
1. The bailout was structured by a Wall Street investment banker for Wall Street investment bankers to be run by Wall Street investment bankers. First they make a mess, then they give Congress a plan that saves themselves above all others. What is the logic here?
2. Trickle-down economics doesn't work and we know that now, so why are we attempting a trickle-down bailout? The claim was that by saving Wall Street they’d save Main Street because they are loosening up credit to help the innocent victims of high finance. If they really wanted to help the victims, the bailout would have been a targeted economic stimulus plan for the real economy as well as targeted individual aid. Seven hundred billion dollars could provide a lot of relief.
3. The bailout is based on free market principles. Nothing wrong with that, unless you consider that one of the main reasons for the economic collapse was thirty years of deregulation based on free market as religion. It didn’t work then. Why would it work now? One of the clinical definitions of insanity is doing the same thing repeatedly hoping to get a different result.
4. How do you put a value on mortgage-backed securities ? One significant reason for the panic that led to the collapse was that Wall Street couldn’t value them. There is probably a way to figure out how much they’re worth, but Congress should have made some effort to do this before deciding to allow $700 billion to be spent on them.
5. There’s no administrative infrastructure to handle the bailout because overseeing this takes an entire government department to make sure it's done right. Right now, the U.S. Government is the investment banker to the world. Hiring a few guys from Goldman Sachs doesn’t help to administrate the world's biggest social welfare program.