The Popular Vote: The politics behind the second bailout plan
Michael Roberts
Issue date: 10/7/08 Section: Opinion
Bailout plan version 2.0 passed in both the House and the Senate. But did we really need the bailout? What are the positives and negatives of this plan? And how much of the plan was revised for political means rather than practical and economic means?
Real free market economists would say, "No bailout plan is needed," and give the reason that what's happening to the financials is just a way of the market self-correcting. If you believe the free-market economists, then we should have simply let the banks that were going bankrupt go bankrupt and let the situation and the free market resolve themselves. The only question then, would be how long of a recession the self-correcting period would be and how bad of a recession that would be. For those two questions, there really seems to be no concrete answers.
The main concern with the free-market approach, though, was that if there was no bailout plan, there would be no liquidity for the banks that managed not to go bankrupt. This would mean that banks simply wouldn't have the money that's needed to give out loans for simple things like cars and homes, and a subsequent domino effect would end with rates getting raised everywhere in order for banks to find some way of getting money.
Now, the bailout plan is no silver bullet to the problems of the financial industry. First off, the bailout plan is not strictly spending money to bail out the financial industries; instead, tax breaks and pork barrel spending are attached like crazy to the bill. This was needed to pass the bailout bill the second time through the House, but it's a sad statement that Congress couldn't originally rally around a bill that many thought would be able to save the economy from certain depression.
More importantly, all those billions of dollars are going to come out of the taxpayers' pockets. Framed correctly, the argument could be made that average Americans have to pay higher taxes because greedy corporate CEOs got a little too carried away with making money, and found their companies filing for bankruptcy after some of their policies didn't work. This kind of spin on the issue is exactly what House Democrats were worried about when voting for the original bailout plan.
Real free market economists would say, "No bailout plan is needed," and give the reason that what's happening to the financials is just a way of the market self-correcting. If you believe the free-market economists, then we should have simply let the banks that were going bankrupt go bankrupt and let the situation and the free market resolve themselves. The only question then, would be how long of a recession the self-correcting period would be and how bad of a recession that would be. For those two questions, there really seems to be no concrete answers.
The main concern with the free-market approach, though, was that if there was no bailout plan, there would be no liquidity for the banks that managed not to go bankrupt. This would mean that banks simply wouldn't have the money that's needed to give out loans for simple things like cars and homes, and a subsequent domino effect would end with rates getting raised everywhere in order for banks to find some way of getting money.
Now, the bailout plan is no silver bullet to the problems of the financial industry. First off, the bailout plan is not strictly spending money to bail out the financial industries; instead, tax breaks and pork barrel spending are attached like crazy to the bill. This was needed to pass the bailout bill the second time through the House, but it's a sad statement that Congress couldn't originally rally around a bill that many thought would be able to save the economy from certain depression.
More importantly, all those billions of dollars are going to come out of the taxpayers' pockets. Framed correctly, the argument could be made that average Americans have to pay higher taxes because greedy corporate CEOs got a little too carried away with making money, and found their companies filing for bankruptcy after some of their policies didn't work. This kind of spin on the issue is exactly what House Democrats were worried about when voting for the original bailout plan.
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