Tony points us to an NYTimes Freakonomics post on an "emerging consensus" view among economists that the $700-billion mortgage bailout is at least dangerous, if not unnecessary. To understand why, see this new open letter to Congress from almost 200 (as of this a.m.) economists of all political stripes who see three big pitfalls to the bailout:
1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.
2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.
3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.
"Illiquid and opaque assets"—sounds like something warranting a call to the Lake Herman Sanitary District, not the Treasury Department.
You want to spend $700 billion helping bankers flush their bad assets? Oh my.