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But Do You Need the Whole $700 Billion Up Front?

Treasury Secretary Hank Paulson's and Fed Chairman Ben Bernanke's $700 billion Wall Street bailout plan is running up against the rough shoals of politics.

The central issue, as elucidated by Sen. Chuck Schumer (D-N.Y.), who is grilling Bernanke before the Joint Economic committee right now, is the following: Why do you need all $700 billion right now? How about if Congress gives you the money in installments, say, $150 billion now, and we'll see how you're doing with it before we give you more?

The New York senator and other lawmakers are trying to fight the "blank check" problem being raised by constituents.

Turns out, Wall Street's psyche is so fragile, Bernanke says, that it won't be soothed by a mere $150 billion.

Schumer said Paulson didn't sufficiently answer the Why? question in yesterday's hearing, so he put it to Bernanke today:

Schumer: "Can you explain why you need it all at once?"

Bernanke: "The concern is that the markets need to have the confidence that the problem will be attacked with sufficient force and addressed." Without the full $700 billion upfront, the government bailout could be perceived by Wall Street as "dribs and drabs," Bernanke said, and the crisis could accelerate.

Schumer tried it another way: "Just from your knowledge as an economist...even if $700 billion is advisable, do you think $150 billion is insufficient to assure the markets that Congress is serious and the government is serious?"

Bernanke responded: "You asked me about my training as an economist; this is a matter for psychology. What signal, what information would the markets get that the government is addressing the problem" if the government bailout arrives in installments, Bernanke asked.

-- Frank Ahrens

By Frank Ahrens  |  September 24, 2008; 11:07 AM ET
Categories:  The Ticker  
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Comments

This is ironic for me. I am a principal in a business that is just taking off with some very innovative and needed technology. All the investors we have talked to so far are so arrogant and dumb it is incredible to me that anyone ever gave them money to invest, or that they ever legitimately made money.

We have been looking to raise $12M to expand, and we are constantly being pressed to explain how we could use $3M, and then if we are successful get the remaining $9M.

What this debacle illustrates is that the Emperor has no clothes, and they are all as dumb as I think. Arrogance is a way of life for these people.

Too bad the world economy is hanging in the balance, I would not give them a penny.

Posted by: Jeff | September 24, 1908 11:58 AM | Report abuse

Do I understand correctly, that the proposed solution would give Paulson $700 billion now, and the right to continue to get $700 billion any time he wanted?

If true, then we really don't know how much he/we would eventually owe.

Posted by: Susan Cronin | September 24, 1908 12:11 PM | Report abuse

Sounds like we got the wrong people running our U.S financial systems, Bernanke just implicitly admitted that he, as an experienced Economist, has no clue and is practicing Phsycology without a license! This is not the time for ametuers, we need Dr. Phil! Seriously, this sounds like these folks are taking a shot in the dark and we need somebody on the job who knows what the HECK they are doing before we commit $700 BILLION PLUS on a 50/50 chance!! I do not like those odds!

Posted by: soccerxyz | September 24, 1908 3:27 PM | Report abuse

Poor babies on Wall Street. They need 700 billion to "feel positive."

I take it they want job security? I take it they want to make sure they don't lose their homes? I take it they don't want to lose their benefits to include health care?

Too bad. Join the club.

And don't give us the excuse that they are the financial masterminds of the economy and they are worth it. The economy has tanked due to them. I don't think throwing money at it is going to work this time.

Wall street failed and they can join the unemployment line with the rest of us. Or perhaps they can start tent cities on their country club golf courses.

Posted by: Anonymous | September 24, 1908 4:40 PM | Report abuse

are we borrowing this $700 billion from China?

if so, may I suggest that they kill two birds with one stone by making it $701 billion, and buying a copy of Rosetta Stone's "Learn Chinese in One Month" for every American household

Posted by: Andy | September 25, 1908 1:58 PM | Report abuse

I do not believe one word Paulson or Bernanke say. The FAIR way to solve this mess would be to sieze the assets of the offending financial institutions and use the proceeds to protect responsible Americans from the ill effects of the greedy financiers who caused this mess. The FAIR way to ensure it never happens again is to ban the officers and directors of the companies that created this mess from ever working in a financial company again.


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Posted by: mofares | September 26, 1908 3:30 PM | Report abuse

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