FInancial Markets. Keep People In Their Homes

Krugman Reflects on the Bush Bailout Bill

From his column today:

The House will probably vote on Friday on the latest version of the $700 billion bailout plan - originally the Paulson plan, then the Paulson-Dodd-Frank plan, and now, I guess, the Paulson-Dodd-Frank-Pork plan (it's been larded up since the House rejected it on Monday). I hope that it passes, simply because we're in the middle of a financial panic, and another no vote would make the panic even worse. But that's just another way of saying that the economy is now hostage to the Treasury Department's blunders.

For the fact is that the plan on offer is a stinker - and inexcusably so. The financial system has been under severe stress for more than a year, and there should have been carefully thought-out contingency plans ready to roll out in case the markets melted down. Obviously, there weren't: the Paulson plan was clearly drawn up in haste and confusion. And Treasury officials have yet to offer any clear explanation of how the plan is supposed to work, probably because they themselves have no idea what they're doing.

As readers of this blog are aware NDN has been raising similar concerns about the plan - that it is not clear that it will work.  One thing that will have to be done, perhaps during the lameduck session in November, is the passage of a plan to keep people in their homes.  For as the new housing data shows housing prices continue to plummet, causing more foreclosures, which is then in turn bringing down home prices even more which is then doing to bring down the core assets whose drop is bringing down the financial house of cards on top of it all. 

Nothing in this now enormous bill will address this fundamental problem. which of course has been driving this entire crisis.  Our fear is that without it we are not doing all that we can to stabilize our wobbly financial markets, and do the right thing by the taxpayers who are footing the bill for this incredible bailout. 

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