MARKET BAILOUT WAS AN ECONOMIC NECESSITY

MARKET BAILOUT WAS AN ECONOMIC NECESSITY

1. EVEN WITH UNCERTAINTY, THE ALTERNATIVE TO A BAILOUT WAS ECONOMIC COLLAPSE

Jay Bookman, Editorial Board, September 24, 2008.

“Paulson proposal puts CEOs first, public last; Treasury boss' bailout plan reveals his bias toward Wall Street,” THE ATLANTA JOURNAL-CONSTITUTION, p. A16.

Nobody knows if a huge taxpayer-funded bailout of Wall Street will stave off financial disaster. But without it, the odds of a collapse rise significantly. So it's not a question of whether to do it, but how to do it. And unfortunately, the proposal initially advanced by the Bush administration is seriously flawed, in large part because it reflects the same mind-set and attitude that helped cause the crisis.
2. EVERY SECTOR OF THE ECONOMY WOULD HAVE FAILED WITHOUT THE BAILOUT

Ledyard King, Staff Writer, September 27, 2008.

“Economists say bailout necessary, but every option has drawbacks,” DETROIT FREE PRESS, Accessed 12-13-2008, .

Q: What if nothing is done? A: Federal Reserve Chairman Ben Bernanke says that would spell grave danger. Businesses unable to get credit would close. Unemployment would rise. Additional homes would fall into foreclosure. Consumer spending would shrink, hurting the service and manufacturing industries. And the stock market would plummet, shrinking the value of stock portfolios and 401(k) retirement accounts.

Thomas Hartley of Buffalo Business First, September 29, 2008

“Bailout deemed 'necessary in short run',” NEW MEXICO BUSINESS WEEKLY, Accessed 12-13-2008, .

Patrick Heraty, professor of business administration at Hilbert College in Hamburg, N.Y., said Congress has few good options other than to enact the controversial legislation. “A lot of smart people have been working on this, so it is likely that what will emerge will be the best solution available. The biggest fears are the unintended consequences that surface with something this complex and unique,” he said. “It will provide some reassurance to both domestic and global markets.”

Paul R. La Monica, CNNMoney.com editor at large, September 22, 2008.

“Be ticked off - but get over it,” CNNMoney.com, Accessed 12-13-2008, .

First and foremost, a collapse of the banking system would have a huge impact on the job market. According to the latest government job figures, about 8.2 million American taxpayers are employed by the financial services industry.

Clearly, not all of them are Wall Street fat cats making big bucks - we're talking about bank tellers, accountants, loan officers, executive assistants and many other types of jobs that would be at risk if the financial industry is not saved. "This was done not to prop up shareholders and executives but to ensure the solvency of the financial system," said John Norris, an economist and managing director with Oakworth Capital, a private bank based in Birmingham, Ala.
5. DESPITE OPPOSITION, BAILING OUT WALL STREET PREVENTED A PROTRACTED RECESSION

Paul R. La Monica, CNNMoney.com editor at large, September 22, 2008.

“Be ticked off - but get over it,” CNNMoney.com, Accessed 12-13-2008, .

"Taxpayers have every right to be angry because we've gotten into this mess by a combination of irresponsible behavior and lax regulation," said Chris Probyn, chief economist with State Street Global Advisors in Boston.

"However, if you look forward, by letting those responsible pay the price, there will be a spillover effect and the economy could go into sharp and protracted recession."

MARKET BAILOUT WAS AN ECONOMIC NECESSITY

1. THE U.S. ECONOMIC SYSTEM WOULD HAVE COLLAPSED ABSENT THE FINANCIAL BAILOUT

Martha Brannigan, Miami Herald Staff Writer, September 25, 2008.

“Experts: Bailout necessary to avoid more disasters,” THE SEATTLE TIMES, Accessed 12-13-2008, .

Without a government rescue of financial markets, experts say some worst-case scenarios could ensue: Your employer won't make payroll because the company's bank account has been frozen in a bank failure. Your credit card will be rejected when you try to pay for groceries or fill your gas tank. Your bank closes. For months, the credit markets that provide the lifeblood of the U.S. economic system have been bogged down, initially over fears and uncertainty about soured mortgage loans.
2. NOT BAILING OUT WALL STREET WOULD HAVE ACCELERATED THE ECONOMIC DOWNTURN

MSNBC News, September 21, 2008.

“Economists see financial bailout as necessary,” MSNBC.com, , Accessed 12-13-2008.

But even with all these threats, economists said the government has to take decisive action because the alternative of letting the financial system slide into even deeper problems which could jeopardize the routine loans that businesses and consumers need was simply not an option. "It was critical to arrest the downward slide in financial markets," said Sung Won Sohn, an economist at California State University, Channel Islands. The dire situation was dramatically demonstrated this past week when the Federal Reserve, working with the central banks of other nations, poured billions of dollars into the financial system without any significant impact because of the fear keeping banks from lending.

Paul R. La Monica, CNNMoney.com editor at large, September 22, 2008.

“Be ticked off - but get over it,” CNNMoney.com, Accessed 12-13-2008, .

What's more, without a bailout, the credit crunch would undoubtedly continue, making it even more difficult for financially responsible borrowers to get mortgages. "I don't think the government had a choice but to take these bad debts of the banks' books," said Tom Higgins, chief economist with Payden & Rygel, a Los Angeles-based money management firm. "What makes capitalism work is borrowing and lending. The problem, without this bailout, would have been you would have condemned the economy to a period of halting growth at best," Higgins added.

And if that happened, the credit crunch would become an outright credit freeze. Suddenly then, all sorts of industries closely related to the banking and housing sectors would be in major trouble.
4. THE FAILURE OF THE BANKING SECTOR WOULD HAVE LED TO A NEW GREAT DEPRESSION

Martha Brannigan, Miami Herald Staff Writer, September 25, 2008.

“Experts: Bailout necessary to avoid more disasters,” THE SEATTLE TIMES, Accessed 12-13-2008, .

Once the banks sell the bad mortgage securities and find ways to rebuild their capital base, they could go forward on steady footing and resume more normal lending. "No one likes to see government money going to bail out other people, but we have no choice," said Ken Thomas, a Miami banking consultant. As lawmakers hash out details of the plan, most experts said something has to be done — and quickly. "The financial markets and banking system are based on confidence," said Krishnan Dandapani, a Florida International University finance professor. "The failure of one institution could lead to a chain reaction. It would be almost like the Great Depression happening all over again."