Members of Congress getting avalanche of mail and deluge of phone calls urging them to reject the Bush-Paulson 700 billion dollar financial sector bailout

Unlikely comrades Paulson, Bernanke, Bush

Its heartening to see some ideological rigour coming out from an unlikely corner, as a splinter group of apparently free-market driven Republicans are leading the charge, with plenty of backing from the public, to quash Treasury Secretary Hank Paulson's huge 700 billion dollar bailout of the financial industry. I say this because supporting this unconscionable bill are most of the free-market crowd, plus an unseemly number of Democrats who, apparently eyeing the election, are deciding their course of action ought to be based on optics rather than principle.

In a more perfect world the few renegade Republicans would have the full backing of the Democrats and this bailout would already be deep-sixed in the Potomac.

Hank Paulson

Bush, Paulson (a former Goldman Sachs CEO), Treasury Secretary Ben Bernanke and others have been crying out for urgent action, claiming financial market panic may result if this unprecedented bailout package is not approved on an urgent basis.

Hundreds of economists including Nobel laureates and financial crisis experts have weighed in via a joint letter which calls upon the White House to reject the bailout and take a slower, conservative, free-market approach.

What seems to be holding the Democrats back from outright opposition is what might happen to financial markets really can't be predicted with certainty, and they don't want to wear the outcome. Markets will go down, to be sure. Lacking a conclusion of the plan, and with news of Washinton Mutual being forced out of business, market futures are off more than 1.5 percent. If the bailout package fails to go through (as U.S. taxpayers should hope) how far might markets go? Maybe 1000 Dow points in one or two sessions. Perhaps double that. Its possible we could see Dow 8,000 in short order (and serious pressure on Canadian markets too). No one can really tell.

But opposing the "solution" is the right thing to do.

Among the controversial elements of the Paulson plan is the clause which if enacted would give Paulson effectively dictatorial control over the funds with no recourse through Congress or the courts. Imagine!

Ultimately what everyone needs to know is that this is not needed. While there most certainly is a crisis of confidence, there are those who stand to make enormous sums of money exploiting the crisis and I am not talking about the convenient boogeyman of late, short sellers. No, its the remaining financial companies which take part in this bailout plan stand to gain billions and billions of profits off the backs of taxpayers. This last paragraph in this quotation sums up the gambit being played:

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.