Question to pose here to the economically savvy.

[tpsbmam]

I'm hearing two main arguments from economists with widely differing opinions. I'm sure there are more arguments and know there are many more nuances to these, but these are the ones that are sticking with me. I'm truly undecided about the bailout and trying to make up my mind. Since I'm not an economist, I have to rely on non-right-wing economists (their particular bias doesn't interest me) to help me understand why they think a bailout of some kind needs to happen vs. those who say it'll hurt us.

One side, to my understanding, pretty much says in an incredibly oversimplified nutshell, that we need the bailout to unfreeze credit and get the whole system rolling again. If we don't do that, the system will come to an even greater screeching halt, trickle down to previously sound smaller banks, trickle down to businesses, and then trickle down to us. The economy will crash as all of that happens.

The other main argument I've heard is that if we do the bailout it'll hurt us long-term via devaluing the dollar and adding to our massive U.S. debt. When they can't continue to pass the debt off onto us, the taxpayers, the dollar will crash leading to the same place as the bailout, or maybe even worse than the bailout.

So is this pretty correct? If so, is there no middle ground? Are we pretty much screwed no matter what we do? Are we potentially a little less screwed with one vs. the other?

I've seen some good economic arguments on here so I know there are people here who might be able to (a) straighten out mistakes in my understanding and (b) unmuddle it a little for me. (Yeah, I made up "unmuddle" -- only word that fit what I'm feeling!)

My head hurts here!

[Hawkowl]

1. Easy solution

An easy solution is to raise funds for the bailout through taxes instead of borrowing or printing money. Taxes aren't inflationary as they simply move money around instead of creating more of it. A tax on security transactions, as little as 0.25%, has been floated by some, (heard it on Thom Hartman, and the idea is on these boards), would be able to fund this sort of bailout.

This would be viewed positively by the world and would probably strengthen the dollar and thus counter inflation. Combine this funding by stringent oversight, regulation, and an equity stake for the public and this problem is solved. Not saying that this would avoid a recession, because housing prices are going to continue to fall and that piper needs time to play the tune and be paid.

[tpsbmam]

5. Why wouldn't that be viewed positively by most? I mean even

those with security transactions -- way better than the system collapsing. I forgot I'd heard that suggestion before. It makes tons of sense to me but then, as previously stated, I'm no economist!

So why hasn't this gained more traction in Congress -- is the word "taxes" that repugnant or are they just too poorly informed/unimaginative. It seems with all of this fake populist rhetoric from some of them that this would gain more traction and would, at minimum, be part of anything that was passed as a way of making up the bailout money.

[Hawkowl]

6. Taxes = repugnant

I think you hit the nail on the head. Raising taxes right before an election? I think most politicians are going to have a knee jerk NO EFFIN WAY! reaction. Give it a little time though and who knows? If Wall Street wants the bailout enough the may come begging the Congress, "Tax us! Tax us!"

[grasswire]

2. H2O man posted a link to a Swedish "bailout"...

...from a few years back that was a different solution to the same kind of problem. I don't know if he started a thread on it or not, but you can probably find it. It was brilliant, and reported that Swedes had come over here to tell the bigwigs how they had solved things.

[unblock]

3. reality is complex. there's some truth to both sides.

any bailout is inflationary and devalues the currency. that's kind of basic.

not doing anything is practically guaranteed to lead to more bank failures; nobody lending; and real companies with real products unable to borrow, unable to even rollover their existing debt, and eventually failing. i thing "depression" talk is overblown and it's part of selling the bailout, but a severe and protracted recession is very likely. it took a long time to get into this mess and it will take a long time to get out.

ideally, the bailout, if done properly, will quickly rebuild the trust needed to get financial institutions lending again, which would lead to growth, enough to offset the negative effects of the bailout.

the problem is, no one knows if $700 billion is way too much or way too little, nor do we even know if getting rid of the "problem" mortgages will restore the needed trust. trust usually take time to rebuild, it's very hard to rush.


the real bottom line is that we'll continue to be messed up until real people can afford to live in houses. this means housing prices must continue to decline, and there's no joy in this economy while real estate prices are in decline. the bailout will really just keep us going until that day. hopefully.

[Greyhound]

4. The muddling is done purposely to distract from the fact that the "plans" they are pushing

are noting more than another round of the largest corporate welfare program ever attempted. Both of them suck and neither of them will fix anything. They both leave the same corrupt, broken, system in place with either no penalty for those responsible or very little.

The good news is that there are options and circumstances will eventually force their consideration.

[tpsbmam]

7. Thanks, all, for the help! Haven't found H20 Man's post yet but I have to run....

I'll keep looking.