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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

CBO Director: Bailout Could Worsen Crisis

Peter Orszag, director of the Congressional Budget Office, dropped a couple of surprises during his testimony before the House Budget committee this morning on the government's response to the current crisis.

Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke are steadfast in their support of their $700 billion bailout plan, saying it's the best chance for preventing the economy from sliding into deeper trouble.

Today, Orszag said, essentially: Eh, maybe not.

"Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values," Orszag said. "Establishing clearer prices might reveal those institutions to be insolvent."

Orszag talked about the paperwork cost of the bailout to the federal budget -- which only would be a small percentage of the overall cost -- and said, "CBO expects that the administrative costs of operating the program could amount to a few billion dollars per year, as long as the government held all or most of the purchased assets."

How many is a "few"?

--Frank Ahrens

By Frank Ahrens  |  September 24, 2008; 2:11 PM ET
Categories:  The Ticker  
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Next: Are lenders more likely to hold on to the foreclosures they own as they wait for the federal government's bailout?

Comments

Finally somebody speaking common sense. Why do we want to buy assets at inflated values?

What ever happen to buy low, sell high?

Here's a better plan:

Let Wall St collapse.
Buy low.

Posted by: Anonymous | September 24, 1908 2:20 PM | Report abuse

I agree 100%.

Posted by: Lynne | September 24, 1908 2:38 PM | Report abuse

Ahhhhh, come on fellas, I want to save the United States economy before Election 2008 although, the economy is fundementally sound and I am must better off than I was 8 years ago, cough-cough, gag, puke, pass-out.

Posted by: Hank whatever | September 24, 1908 2:48 PM | Report abuse

If the Wall Street Executives could properly handly money before what makes us so sure they will handle it correctly if we hand um a bunch more money???? Where are Obama and McCain with their super duper economic plans???

Posted by: fred | September 24, 1908 3:02 PM | Report abuse

Absolutely! The consequences for this action have not been well thought out. Just like with the other actions of Paulson. By nationalizing the GSEs he may have inadvertently helped start the attack on Lehman by short sellers. Then by refusing to bail out Lehman he started the run on the money market funds. He could have kept Lehman going for a mere 10 billions. By refusing to lend AIG 40 billions he triggered a rating downgrade and then was forced to lend AIG 85 billions instead. The sheer size of the AIG loan then spooked the market even worse. Now he wants 700 billions to "save" the market. He may end up destroying it instead. The cure could be worse than the disease.

McCain needs to step up and oppose this bailout right away. That should kill it. He then needs to propose a program of comparable size to help homeowners in trouble by buying out their mortgages and then refinancing them directly. The program also should spend the bulk of the money to rebuild our infrastructure and create jobs for real Americans instead.

Otherwise McCain can kiss the election good bye with the bailout. His chance of winning is next to zero. Bush and Paulson have made sure of that.

Posted by: Bob | September 24, 1908 3:29 PM | Report abuse

Why pay 100 cents on the dollar for toxic waste? Pay, say, 50 cents and let the banks share the pain. They'd still be getting a great deal, and the markets would have the confidence they need to know the banks won't fail.

As for executive pay cuts, banks routinely require cost-cutting measures as a requirement for getting loans. The US has the highest executive pay scales in the world, so this is nothing but getting labor costs under control.

Any CEO who rejects a bailout because of restrictions on their pay, and their Boards of Directors, can deal with the shareholders. And the shareholders' lawyers.

Posted by: Garak | September 24, 1908 3:34 PM | Report abuse

LIMIT their pay??? They should get nothing. Don't you think these losers have been laughing at us for long enough?

Posted by: Dim | September 24, 1908 3:49 PM | Report abuse

Light trade day on Wall Street today (9/24). DOW and S@P 500 slightly down, NASDAQ slightly up. Absolutely no signs of panic or collapse. But Treasury Secretary Paulsen insists the financial bailout bill must pass by Friday or there will be financial disaster.

This plan is a complete scam.

Posted by: Caleb | September 24, 1908 4:10 PM | Report abuse

Just say no to Wall St.

Posted by: jhbyer | September 24, 1908 4:13 PM | Report abuse

Don't give them a cent. We can endure. We are the United States. "The only thing we have to fear is fear itself." FDR

I don't believe in call terrorists, terrorists. This assumes I am frightened of them. I have nothing left to lose. The only terrorists I see are Bush, Cheney, Bernanke, and Paulson.

My questions are these...What are they so frightened of that they are projecting those fears on to the US citizens? Why 700 billion so soon? Surely they can come up with a detailed scenario of what exactly will happen if they don't extort this money out of us?

However, I don't negotiate with terrorists. They shall just have to come up with an educated factual scenario as to why we have to pay 700 billion.

No oversight from courts? Third parties? That is not Liberty or Democracy that is fascism.

Give Me Liberty.

Posted by: Linda | September 24, 1908 4:33 PM | Report abuse

You have a lot more than a few unknowns and then there are the unknown numbers that tend to come out of you know where, so it could get or worse or it could be worse than first thought. It's like building a dam. It starts out as a $600 million project and funds are arranged. Then in the middle of the project Murphy causes troubles and now it's a $800 million dam project. The entire river is torn up so you can't stop the dam project, all you can do is fork over the additional funds. The 700 billion dam dollars could become 900 billion dam dollars and then it could be unknown how much more could be needed after that for keeping the dam maintained in the future. You get to a point where you look back and think, we would of been better off just not damming the river to start with. Stay busy beavers and send me $1.6 million, I have a bigger need for it than you. I'll wire for more money in the future depending on what Murphy decides to do. He says he not slowing the river down, he is just raising the pools and lowering the pools to avoid flooding. The pressure is great and with more dam money the pressure increases and you get a grand daddy of a flood. Send money, the flood insurance won't cover the damages.

Posted by: J.D. | September 25, 1908 6:30 AM | Report abuse

In spite of Congressional and White House assurances, this deal still has the stench of a long-dead moose (Palin knows what I mean). Congress has no idea what they are assenting to and Bush and company have once again bamboozled them. They may have gotten an agreement for phased payments, but I don't see any real controls by the Congress in the terms listed. Snake oil is still snake oil and this time around the taxpayer is being inundated with it. The taxpayer lives in one universe, while the politicians live in another.

--------

Posted by: Diogenes | September 25, 1908 3:52 PM | Report abuse

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