Editor's note: Jeffrey A. Miron is senior lecturer in economics at Harvard University. A Libertarian, he was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan.

Story Highlights................................

Jeffrey Miron: Congress/Government encouraged lenders to relax their standards.
Mortgages were given to people unqualified to repay them, he says
Miron: Rather than a bailout, government should let firms go bankrupt
Talk of economic Armageddon is scare-mongering, Miron says
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-- Congress has balked at the Bush administration's proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the "troubled assets" of financial institutions in an attempt to avoid economic meltdown.

This bailout was a terrible idea. Here's why.

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.


http://www.cnn.com/2008/POLITICS/09/...ef=mpstoryview
Comments :
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I think we’re beginning to realize that the sky isn’t going to fall if the Paulson plan doesn’t pass, and that we can take our time and find smart solutions that won’t enslave us to some socialist regime.
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Note this is a “special” to CNN.

Nevertheless, I have been quite amazed that there are so many academic economists out there who are at least thinking and willing to take a stand-—even, effectively, staking the fate of the global economy on their professional analysis.

Of course, one has to wonder if this is not some knee-jerk manifestation of BDS. However, the economists from this group that I have seen on tv, as well as this author, come across as professionals who are not making political judgments.
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you’d think,>>>>>ONE<<<<<,banker or republican
with balls,would get on tv,and lay the blame on the culprits.
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This is one of the best and most concise explanations of the “no bailout” position I have read. I commend it to other readers.
..............................CNN gets it? This is the beginning of the end.
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