After days of offering "trust us" as the only reason their bailout plan would work, Ben Bernanke (not Generalissimo Henry Paulson) finally offers a rationale, Krugman writes in his blog today:
It is, in effect, a metastasized version of the “slap-in-the-face” theory that has failed to resolve the crisis so far....
...markets are getting hysterical, and the feds can calm them down by buying when everyone else is selling.
Before going on to explain all the holes in this theory, Krugman lays bare the essense of the Paulson/Bernanke "plan":
They want to buy bad paper from everyone, not just institutions in trouble, while taking no ownership. In fact, they’ve said that they don’t want equity warrants precisely because they would lead financial institutions that aren’t in trouble to stay away. So we’re talking about a bailout specifically designed to funnel money to those who don’t need it.
This needs to be shouted from the rooftops: NO DEAL!!!
If there were any doubt of Bushco's insincerity Krugman puts it to rest in his conclusion:
Paulson and Bernanke seem to be digging in their heels against equity warrants or anything else that would make this a more standard financial rescue. I say no deal on those terms — and if the lack of a deal puts the financial world under strain, blame Paulson and Bernanke, who have wasted most of a week demanding authority without explanation.
Matthew Yglesias comes to the same conclusion that the stonewalling on giving reasons for the $700 billion figure and the plan means it should be rejected. The first comment to his post, by "El Cid" sums this all up perfectly:
Did you not read the ransom note? It clearly said to give the all the money by this week or things could happen, bad things, things you wouldn’t like.
That really is what this boils down to. If you haven't called your Representative and Senators yet, please do. You can refer them to this open letter by the nation's top economists saying we need to do any bailout plan RIGHT not quickly: Open Letter on the Bailout
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