cnbc
US Bailout in Chaos, WaMu Is Biggest Bank Failure
A rescue for the U.S. financial system unraveled late Thursday amid accusations Republican presidential candidate John McCain scuppered the deal, and Washington Mutual was closed by U.S. authorities and its assets sold in America's biggest ever bank failure.
As negotiations over an unprecedented $700 billion bailout to restore credit markets degenerated into chaos, the largest U.S. savings and loan bank was taken over by authorities and its deposits auctioned off. U.S. stock futures fell by more than 1 percent....
http://www.cnbc.com/id/26895236 $700 Billion May Not Be Enough: Dr Doom
$700 billion may not be enough to bail out Wall Street says one analyst, given the lack of transparency and the length and breadth of financial markets involved.
Marc Faber, editor & publisher of 'The Gloom, Boom & Doom Report', told CNBC's Asia Squawk Box on Friday, he doubts that $700 billion would make any difference when you consider the size of U.S. credit markets....
http://www.cnbc.com/id/26895741
bloomberg
Hundreds of Economists Urge Congress Not to Rush on Rescue Plan
More than 150 prominent U.S. economists,
including three Nobel Prize winners, urged Congress to hold off on
passing a $700 billion financial market rescue plan until it can be
studied more closely.
In a letter yesterday to congressional leaders, 166 academic
economists said they oppose Treasury Secretary Henry Paulson's plan
because it's a ``subsidy'' for business, it's ambiguous and it may
have adverse market consequences in the long term. They also expressed
alarm at the haste of lawmakers and the Bush administration to pass
legislation.
``It doesn't seem to me that a lot decisions that we're going to have
to live with for a long time have to be made by Friday,'' said Robert
Lucas, a University of Chicago economist and 1995 Nobel Prize winner
who signed the letter. ``The situation may get urgent, but it's not
urgent right now. Right now it's a financial sector problem.''
The economists who signed the letter represent various disciplines,
including macroeconomics, microeconomics, behavioral and information
economics, and game theory. They also span the political spectrum,
from liberal to conservative to libertarian.
Some lawmakers are already citing the letter as reason not to endorse
the Paulson plan. Today Senator Richard Shelby, a Republican from
Alabama, said he has ``five pages of the leading economists in America
that wrote to me and the leadership saying the Paulson plan is a bad
plan. It will not solve problems. It will create more problems.''
`How Capitalism Works'
The letter, initially conceived by economists at the University of
Chicago, was signed by professors from dozens of American universities
and several outside the U.S.
David I. Levine, a professor of economics at University of
California-Berkeley, says the current plan being discussed has the
wrong structure.
``The structure is designed for the Treasury to be the first line of
defense,'' said Levine, who studies organizations and incentives. ``A
whole lot of people made money supposedly by putting their capital at
risk, and those are supposed to be the first line of defense, that's
how capitalism works.''
Jeffrey Miron, a Harvard University professor and self- described
libertarian, objects to what he says is `` a stunningly broad,
aggressive government intervention without appropriate precedents.''
He advocates allowing the normal process of business failure and
bankruptcy to run its course. ``It's just nothing like the calamity
the administration is making it out to be,'' he said.
Unprecedented Power
Erik Brynjolfsson, of the Massachusetts Institute of Technology's
Sloan School, said his main objection ``is the breathtaking amount of
unchecked discretion it gives to the Secretary of the Treasury. It is
unprecedented in a modern democracy.''
Advocates for a rescue plan this week point to a seizing up of credit
markets, reflected in elevated inter-bank lending rates, as reason for
action. Some economists are unconvinced.
``I suspect that part of what we're seeing in the freezing up of
lending markets is strategic behavior on the part of big financial
players who stand to benefit from the bailout,'' said David K. Levine,
an economist at Washington University in St. Louis, who studies
liquidity constraints and game theory.
