Sep 30, 2008

The $700 Billion Bail-out: Why It Was Good to Say No

In my previous entry I discussed the fall of the Lehman Brothers and what this entailed for graduates seeking jobs. Given the growing concern of the current economic crisis many students felt that employment after graduating would now be harder. This week, I chose to write on another predominant issue of the economy, the $700 billion bail-out I felt it was extremely important to put the situation of the bailout and why it was voted against into perspective. I explored the blogosphere to find many bloggers and posts regarding this topic and focused on posts that contextualized the fundamentals of the plan. Through critical insight into the bailout, such as the fact the figure of $700 billion was admittedly chosen at random creates a better understanding while also revealing the many problems of the bailout. The first blog I commented on, Top 5 Reasons to Vote Against the $700 Billion Bailout gave extremely thorough and educated reasons why the bailout was a bad plan. Written by David Sirota, widely known for his coverage of political corruption and working-class economic issues, his immense knowledge and use of solid sources made his post extremely credible and influential. The second post I commented on was written by a Douglas Rushkoff, an extremely educated teacher, author and graduate from Princeton, Douglas focuses on people and institutions and how these influence one another. In his post Bail In or Bail Out? offers a more neutral and simple take on the plan that concluded that the bailout was not the right fix. In the case of the complicated bailout, I felt this blog allowed the reader to gain full understanding of the issue as it summarized the bailout and its effects in a simple but yet educated manner. Aside from publically posting my comments on each of the author’s blogs I have also posted them below.

“Top 5 Reasons to Vote Against the $700 Billion Bailout”
Comment:

Thank you for a concisely and clearly structured post regarding the complex issue of the $700 billion bailout. You are clearly extremely knowledgeable regarding this topic and have used extensively critically chosen facts and analysis to argue your case. By numerically ordering your points, you have made an extremely powerful, educated, and understandable case of why “every single member of Congress” should have voted against the convoluted issue of the bailout. Each differing factor you numerically examined kept straight to the point and therefore was understandable which is extremely important when discussing such an intricate issue. I fully agree with your opinion of not supporting the bailout and thought your use of examples both enhanced your ability to engage with the reader and to influence them. The example of “using a new credit card to pay off astounding debt from an old credit card … which is illegal” allows to reader to contextualize the concept of the bailout and engages them in thinking of the repercussions. Also by starting with such an example in your first of five reasons, immedi
ately grabs the readers’ attention. Having read many articles both for and against the bailout, I was extremely glad to you wrote on the “clearly better and safer alternatives”. I agree with your point that many are under this ‘White House spell’ of “fear”. Many people who do not quite understand economics and the financial situation, especially those who are in powerful positions miss the point that several financial firms have began to work their way through the crisis even without the governments help. Furthermore, your point that increasing government debts will only harm us more is again something I agree with and see that many people forget to yet need to think of this important point.

Your choice of sources such as the U.S. Department of Treasury, Harvard’s Ken Rogogg, CEPR’s Baker and the NY Times reflects your wide spectrum of knowledge and your strength in analysis. You extract excellent evidence to further support and development your argument such as using Baker, someone who predicted the crisis, giving your post more credibility. Overall, a highly enjoyable post to read although I wished you expressed more of your opinion and thoughts on what policymakers and financial firms to do in order to resolve the crisis.

“Bail In or Bail Out?”
Comment:
I would like to begin by thanking you for blogging about the bailout in such an informative yet understandable way. By simply stating the fundamentals of what a bailout would mean you have constructed your post in a more open-ended fashion allowing to reader to either agree or disagree with the decision of not having the bailout. I especially enjoyed reading your blog as unlike many others, took a more neutral stance on the issue. Your explanation of the mortgages being currently extremely under-valued gives the reader more insight into the crisis revealing that in time these “depressed investments” will “earn out” and thus are solvable themselves. By describing that these “debts that are selling way way below their longterm value” you have also conveyed to the reader the governments reasoning as to why they began the debate of the bailout. Although this may seem obvious, many other blogs that I have read forget this point and see that the government was being irrational in even thinking of such a plan. I also thought your last paragraph of the need to invest “our time, energy, and remaining money in productive industries, education, and renewable resources” was insightful and showed your understanding of the economy. I agree with you on this and think that although the financial crisis has had detrimental effects on the economy it so far has proven to be more solvable than the problems of a lack of investments in renewable resources. Therefore, the bail-out is not necessary for relieving this crisis.

However unlike the general neutrality of your post you seem to focus more blame on McCain as to why the bailout did not go through. Instead, I feel that this was a minor reason as to why bailout was voted against. You do not mention the failures of the bailout itself such as increasing an already enormous debt as the main reason why the House voted against the plan. Although I found that your post importantly contextualized the bailout in a simple form which is extremely important in the case of such a complex issue, I would have liked to read more about your views and opinions.

1 comment:

Jon Carpenter said...

This post makes a compelling yet objective argument against the Wall Street bailout bill proposed in Congress this week. I am glad that people are taking an interest in such an important piece of legislation, and that the blogosphere is a venue through which serious debate on the matter can occur. Your responses to Mr. Sirota and Mr. Rushkoff are thoughtful and meaningful, as are their original posts. However, I agree with you that I would have liked to see more time spent on debating alternatives to the bailout in each of those posts, and in yours – because while I think rational people can disagree over what needs to be done, it is pretty clear that something has to be done. I realize that both of their posts did address possible alternatives briefly, but I didn’t feel like I understood what those were after reading your entry. What you did extremely well, though, was discuss the many downsides to the bailout. There are, without question, serious problems with increasing the country’s national debt at a time when we are already substantially more indebted than we ought to be; and I agree that there are some ironic problems with taking on significant debt that will be difficult to repay when one of the central causes for the financial crisis has been the failure of individuals to repay their loans, followed by the subsequent loss of securities investments that had been bundled and dispersed by the banks. Additionally, I think that you make a good point when you observe this White House’s tendency to invoke fear into the debate, in the hope of scaring the American people into supporting their proposals. This is especially relevant considering allegations that this occurred prior to the invasion of Iraq several years ago.
In the years since, the White House has lost credibility with the American people – this time around, they refused to buy into the idea that we must act now. The poll numbers have reflected this. Yet I disagree with the conclusion drawn – that the bailout should be opposed because of this fact, or because of possible other drawbacks associated with it. It seems to me that in the absence of any other substantial, coordinated effort against financial disaster, it is too risky to just hope that the markets can take steps on their own to correct the problem. In my view, it would be better to overreact to this problem than to let the problem spiral out of control, which would in turn scare the electronic herd of investors so much that they abandon investing altogether. With that said, however, your post was an insightful look into the other side of the issue – and if there was ever a grey issue that required dynamic examination, this is it. So thank you very much for taking part in this critical discussion!

 
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