Thursday, September 25, 2008

Bush Administration’s Fuzzy Bailout Proposal

Peter Orszag, the Congressional Budget Office director, tells Congress that the proposed $700 billion bailout may worsen the current financial crisis. Orszag says, “. . . intervention on a massive scale is not without risks to taxpayers and to the economy. Almost by definition, the intervention cannot solve insolvency problems without shifting costs to the taxpayers. Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled [junk] assets on their books at inflated values. Establishing clearer prices [through the proposed bailout process] might reveal those institutions to be insolvent.”

Forbes writes that the Bush administration’s bailout proposal was thrown together in a rush without thinking it through:
The more Congress examines the Bush administration's bailout plan, the hazier its outcome gets. At a Senate Banking Committee hearing Tuesday, lawmakers on both sides of the aisle complained of being rushed to pass legislation.

"The secretary and the administration need to know that what they have sent to us is not acceptable," says Committee Chairman Chris Dodd, D-Conn. The committee's top Republican, Alabama Sen. Richard Shelby, says he's concerned about its cost and whether it will even work.

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 Tuesday. “We just wanted to choose a really large number.

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