The Bailout Plan

Like a lot of people, I have been obsessed with reading about the bailout plan being debated in Congress. To say I am torn about it is an understatement. But the more I read about it, though, the less I like it. On one hand, I understand that we are a national and global economy. Therefore, the behavior of others impacts us – whether positively or negatively. In this sense, the plan is not just bailing out those in trouble, it is helping all of us. On the other hand, I am wary of the extent of power it gives to government and skeptical of the good that such a hand-over of power will do.

While Paulson’s initial demand of money with zero oversight was (in my opinion) unconstitutional, the current plan sets up oversight but leaves a lot of open questions. Who determines what mortgages to buy and which not to buy? How is their “true” value going to be settled? Which banks are we baling out and which are we not bailing out? These remain unanswered questions, primarily because answering them in the here and now would be impossible.

This brings me to my next point: the claim that this will unfreeze assets and make banks start lending again. Is this inevitable? Are we requiring banks to lend? What if the assets are not frozen but the depressed condition of the economy makes banks cautious and unwilling to lend anyway?

I am glad the new plan establishes oversight. I am glad that we are not shelling out $700 billion in one fell swoop. But I am still concerned that the plan simultaneously does too much and not enough. That it will be too great a grant of power and discretion and that this grant of power will be futile.

As I was writing this, I read that the plan failed in the House of Representatives. Nothing signifies my ambivalence more than my response. I am scared – because now it looks like there is nothing left to do but wait and watch the consequences of this failure. And who knows what the consequences will be? And I was not even in favor of the bill!!!!!

This situation reminds me of the Federalist-Anti-Federalist debates on the Constitution. The Anti-Federalists argued against the Constitution saying that it was too great a grant of power to the federal government and that the country was being scared into voting for it. It was a document which would prove harmful to the people and fear mongerers were forcing it through. The Federalists warned of the dire consequences if it was not adopted saying that the country would disintegrate if the Constitution was not ratified. Is this where we are today?