Almost everyone has by now said what he/she thinks about the Bush administration’s bailout plan, i.e. injection of $700 billion into the economy in a way of buying up bad loans. I was pleasantly surprised, when the congress did not pass the legislation initially. I thought it was very unfair to rescue bad businesses at the expense of good taxpayer.
But there is more than that in this bailout thing. It is a short time remedy, that can have no profound effect on the economy’s state. It does not change the structure of the economy, it has nothing to do with reforms and ultimately it can only have a very limited scope of impact – mostly psychological.
I won’t even venture to use economic data to show that pumping additional $700 billion is not going to work. I see the situation in very simple way: bad credits/loans ruin risky/unlucky private institutions, government come in to rescue them, they learn they are going to be saved NEXT TIME as well (nothing will ever convince them they won’t be), so even if the rescue plan now works, another, even perhaps greater crisis will follow later on. But I don’t think it will work even now, I mean for more than several weeks, so the crisis will mount pretty soon.
On the other hand, of course, the government has to do something about it, including taking short term measures. I am not convinced though, that just short term measures will be enough to boost market confidence, it might just continue agonizing for a while.
