Chicago area economists lead opposition to bailout

Some Chicago economists are leading an opposition movement to get lawmakers to consider other options.

Two economists lead the opposition movement, one from the University of Chicago, the other from Northwestern University. And Thursday their concerns were brought into the White House meeting.

Senator Richard Shelby went to the White House armed with a letter. The letter is signed by 200 economists, including three Nobel Prize winners, and warns Congress not to back the bailout.

Kellogg School of Management Associate Professor Paola Sapienza organized the economic "write-in."

"Thinking this is the only way would be a mistake for Congress," said Sapienza.

Sapienza and the others find fault with the Paulson plan for three reasons:

  • Its ambiguity: Very short on specifics and oversight, they say.
  • Its fairness: Because taxpayers will be subsidizing the risk investors chose to take.
  • And it's long-term effects: The economists say paying for it will take a generation.
  • "Ben Bernanke likes to say there are no atheists in fox holes, well General Bernanke just called in from the fox hole and said we want a nuclear strike. It's that radical and we're going 'is it really that bad?'" said John Cochrane, finance professor, University of Chicago.

    Prof. Cochrane says despite what you hear from Wall Street and Washington, financial armageddon is not upon us.

    "Before you go nuclear I think we need to know if there's something really bad out there they're not telling us about," said Cochrane.

    Both Sapienza and Cochrane say the Bush administration is hyping the urgency with which Congress needs to act. They believe the markets can hold their own for a week or two or three and give Congress time to determine whether such a big bailout is essential.

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