Sunday, November 9, 2008

"Emergency Rescue Plan"

That is what President Bush and Treasury Secretary Paulson should have called the $700 "bailout" from the start. By allowing it to be defined as a bailout, they automatically limited its popularity with the people, and thus lost Congressional support. There has never been a sustained concerted effort to explain it to the American people.

The original plan Paulson put forward was an asset purchase program where the government would buy up mortgage-backed securities and hold them until the market returned, and then sell them, potentially at a profit. The government would have likely recovered most of the cost or even made money on the program.

It was an emergency measure meant to thaw the credit markets which had completely seized up. Financial institutions had stopped loaning even to each other. If the credit markets had stayed frozen, it would have pushed us into a significantly deeper recession. They are now gradually thawing.

Whether people supported or opposed the plan depended greatly upon what they thought the plan was. Those that saw the plan as a "bailout to Wall Street" did not like it. Same for many conservatives who instinctively oppose goverment intervention in markets (for good reasons). Those who supported it were those that either tend to favor government intervention or realized that this was a financial crisis that required emergency measures to deal with it.

For the record, about 2/3rds of Democrats in Congress voted for the plan, while only about 1/3rd of Republicans did. In defense of conservatives that voted for it: when Tom Coburn, Paul Ryan, Larry Kudlow, and Steve Forbes support it, it can't be all bad. Those are 4 leading free market advocates.

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