Later On

A blog written for those whose interests more or less match mine.

Interesting bailout post by Ezra Klein

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Jamie Galbraith spoke before the House Democratic Caucus yesterday, and The Prospect has published the notes from his remarks. I’d suggest reading the whole thing, but the portion I want to focus on comes near the end:

[N]either this program nor my FDIC proposal will prove sufficient to restore economic growth and high employment. For that purpose, resolution of the underlying housing problem, of the revenue problem of state and local governments, and of the wealth and income problems of retirees and other asset-dependent parts of the population are all essential. Those measures lie ahead; they will not be part of this bill.However, the fate of this program will depend on the willingness of Congress to solve these problems at a later date. If the economy is allowed to stagnate, foreclosures will multiply and the financial system will continue to implode. Only a comprehensive approach to deal with the deeper issues of jobs, wages, pensions, and housing can generate the income streams necessary to make the mortgage burdens sustainable over time…Given the choice between approving or defeating the bill as it stands, I would urge supporting the bill. I do so without illusions. There need be no pretense that it will solve our underlying financial and economic problems. It will not. The purpose, in my view, is to get the financial system and the economy through the year, and into the hands of the next administration. That is a limited purpose, but a legitimate purpose. And it may be the most that can be accomplished for the time being.

To put it slightly differently, there are a lot of different economic problems in play right now. One is that we have a bad economy, with rising unemployment, stagnating wages, anemic demand, weak consumer confidence, and broad housing insecurity. Another is that we are having a crisis in our financial sector. If our financial sector collapses, these is some possibility (no one has been quite clear on how large this possibility is) that our credit markets will seize up and our bad economy will become a nightmare economy. That can’t be allowed to happen. But even if the financial sector is saved, the economy is still weak, and will require significant attention — probably in the form of a large and well-targeted stimulus. That will, in all likelihood, be the next president’s job. Hopefully, that will be the entirety of his job. The aim for Congress right now is to increase the likelihood that the next president faces a troubled economy with traditional afflictions rather than an economic catastrophe driven by a complex collapse in credit.

Written by Leisureguy

30 September 2008 at 3:16 pm

Posted in Business, Government

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