Beware of people who tell you what “everybody knows,” particularly if they are academics. “Virtually every economist who looked at the original plan said it was the wrong way to go,” Loyola finance professor George G. Kaufman said, as quoted by the Washington Times. “All of us were disappointed that it took [U. S. Treasury Secretary Henry M.] Paulson and the Administration so long to recognize the obvious.”
Actually, what was obvious to Kaufman and his ilk was that, in their view, the plan did not go far enough in nationalizing finance. As it turns out, a couple of hundred economists felt that it went entirely too far and petitioned Congress to let lawmakers know about their anxiety.
“On September 25, just after White House negotiations over a $700-billion Wall Street bailout plan collapsed in acrimony, Sen. Richard C. Shelby, an Alabama Republican who opposed the bailout, stood in front of television cameras and waved a petition,” David Glenn reported in The Chronicle of Higher Education on October 17, 2008. “It was signed by roughly 200 economists who were also skeptical.”
“The plan is a subsidy to investors at taxpayers’ expense,” the petition read. “Investors who took risks to earn profits must also bear the losses.”
“Not every business failure carries systemic risk,” the petitioners pointed out. “The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.”
The economists went on to note that “Neither the mission of the new agency nor its oversight are clear.”
“If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.”
“If the plan is enacted, its effects will be with us for a generation,” the economists warned. “For all their recent troubles, America’s dynamic and innovative private capital markets have brought the nation unparalleled prosperity.”
“Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.” Some might look at their advice and be reminded of an old song—Fools rush in where angels fear to tread. “For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come,” the economists advised.
For the record, here is the roll call of those economic mavericks. You may notice that the aforementioned Mr. Kaufman is not on it:
• Acemoglu Daron (Massachussets Institute of Technology)
• Ackerberg Daniel (UCLA)
• Adler Michael (Columbia University)
• Admati Anat R. (Stanford University)
• Ales Laurence (Carnegie Mellon University)
• Alexis Marcus (Northwestern University)
• Alvarez Fernando (University of Chicago)
• Andersen Torben (Northwestern University)
• Baliga Sandeep (Northwestern University)
• Banerjee Abhijit V. (Massachussets Institute of Technology)
• Barankay Iwan (University of Pennsylvania)
• Barry Brian (University of Chicago)
• Bartkus James R. (Xavier University of Louisiana)
• Becker Charles M. (Duke University)
• Becker Robert A. (Indiana University)
• Beim David (Columbia University)
• Berk Jonathan (Stanford University)
• Bisin Alberto (New York University)
• Bittlingmayer George (University of Kansas)
• Blank Emily (Howard University)
• Boldrin Michele (Washington University)
• Bollinger, Christopher R. (University of Kentucky)
• Bossi, Luca (University of Miami)
• Brooks Taggert J. (University of Wisconsin)
• Brynjolfsson Erik (Massachusetts Institute of Technology)
• Buera Francisco J.(UCLA)
• Cabral Luis (New York University)
• Camp Mary Elizabeth (Indiana University)
• Carmel Jonathan (University of Michigan)
• Carroll Christopher (Johns Hopkins University)
• Cassar Gavin (University of Pennsylvania)
• Chaney Thomas (University of Chicago)
• Chari Varadarajan V. (University of Minnesota)
• Chauvin Keith W. (University of Kansas)
• Chintagunta Pradeep K. (University of Chicago)
• Christiano Lawrence J. (Northwestern University)
• Clementi, Gian Luca (New York University)
• Cochrane John (University of Chicago)
• Coleman John (Duke University)
• Constantinides George M. (University of Chicago)
• Cooley, Thomas (New York University)
• Crain Robert (UC Berkeley)
• Culp Christopher (University of Chicago)
• Da Zhi (University of Notre Dame)
• Darity, William (Duke University)
• Davis Morris (University of Wisconsin)
• De Marzo Peter (Stanford University)
• Dubé Jean-Pierre H. (University of Chicago)
• Edlin Aaron (UC Berkeley)
• Eichenbaum Martin (Northwestern University)
• Ely Jeffrey (Northwestern University)
• Eraslan Hülya K. K.(Johns Hopkins University)
• Fair Ray (Yale University)
• Faulhaber Gerald (University of Pennsylvania)
• Feldmann Sven (University of Melbourne)
• Fernandez, Raquel (New York University)
• Fernandez-Villaverde Jesus (University of Pennsylvania)
• Fohlin Caroline (Johns Hopkins University)
• Fox Jeremy T. (University of Chicago)
• Frank Murray Z.(University of Minnesota)
• Frenzen Jonathan (University of Chicago)
• Fuchs William (University of Chicago)
• Fudenberg Drew (Harvard University)
• Gabaix Xavier (New York University)
• Gao Paul (Notre Dame University)
• Garicano Luis (University of Chicago)
• Gerakos Joseph J. (University of Chicago)
• Gibbs Michael (University of Chicago)
• Glomm Gerhard (Indiana University)
• Goettler Ron (University of Chicago)
• Goldin Claudia (Harvard University)
• Gordon Robert J. (Northwestern University)
• Greenstone Michael (Massachusetts Institute of Technology)
• Gregory, Karl D. (Oakland University)
• Guadalupe Maria (Columbia University)
• Guerrieri Veronica (University of Chicago)
• Hagerty Kathleen (Northwestern University)
• Hamada Robert S. (University of Chicago)
• Hansen Lars (University of Chicago)
• Harris Milton (University of Chicago)
• Hart Oliver (Harvard University)
• Hazlett Thomas W. (George Mason University)
• Heaton John (University of Chicago)
• Heckman James (University of Chicago – Nobel Laureate)
• Henderson David R. (Hoover Institution)
• Henisz, Witold (University of Pennsylvania)
• Hertzberg Andrew (Columbia University)
• Hite Gailen (Columbia University)
• Hitsch Günter J. (University of Chicago)
• Hodrick Robert J. (Columbia University)
• Hollifield Burton (Carnegie Mellon University)
• Hopenhayn Hugo (UCLA)
• Hurst Erik (University of Chicago)
• Imrohoroglu Ayse (University of Southern California)
• Isakson Hans (University of Northern Iowa)
• Israel Ronen (London Business School)
• Jaffee Dwight M. (UC Berkeley)
• Jagannathan Ravi (Northwestern University)
• Jenter Dirk (Stanford University)
• Jones Charles M. (Columbia Business School)
• Jovanovic Boyan (New York University)
• Kaboski Joseph P. (Ohio State University)
• Kahn Matthew (UCLA)
• Kaplan Ethan (Stockholm University)
• Karaivanov Alexander (Simon Fraser University)
• Karolyi, Andrew (Ohio State University)
• Kashyap Anil (University of Chicago)
• Keim Donald B (University of Pennsylvania)
• Ketkar Suhas L (Vanderbilt University)
• Kiesling Lynne (Northwestern University)
• Klenow Pete (Stanford University)
• Koch Paul (University of Kansas)
• Kocherlakota Narayana (University of Minnesota)
• Koijen Ralph S.J. (University of Chicago)
• Kondo Jiro (Northwestern University)
• Korteweg Arthur (Stanford University)
• Kortum Samuel (University of Chicago)
• Krueger Dirk (University of Pennsylvania)
• Ledesma Patricia (Northwestern University)
• Lee Lung-fei (Ohio State University)
• Leeper Eric M. (Indiana University)
• Letson David (University of Miami)
• Leuz Christian (University of Chicago)
• Levine David I.(UC Berkeley)
• Levine David K.(Washington University)
• Levy David M. (George Mason University)
• Linnainmaa Juhani (University of Chicago)
• Lucas Robert (University of Chicago – Nobel Laureate)
• Ludvigson, Sydney C. (New York University)
• Luttmer Erzo G.J. (University of Minnesota)
• Manski Charles F. (Northwestern University)
• Martin Ian (Stanford University)
• Mayer Christopher (Columbia University)
• Mazzeo Michael (Northwestern University)
• McDonald Robert (Northwestern University)
• Meadow Scott F. (University of Chicago)
• Meeropol, Michael (Western New England College)
• Mehra Rajnish (UC Santa Barbara)
• Mian Atif (University of Chicago)
• Middlebrook Art (University of Chicago)
• Miguel Edward (UC Berkeley)
• Miravete Eugenio J. (University of Texas at Austin)
• Miron Jeffrey (Harvard University)
• Moeller, Thomas (Texas Christian University)
• Moretti Enrico (UC Berkeley)
• Moriguchi Chiaki (Northwestern University)
• Moro Andrea (Vanderbilt University)
• Morse Adair (University of Chicago)
• Mortensen Dale T. (Northwestern University)
• Mortimer Julie Holland (Harvard University)
• Moskowitz, Tobias J. (University of Chicago)
• Munger Michael C. (Duke University)
• Muralidharan Karthik (UC San Diego)
• Nair Harikesh (Stanford University)
• Nanda Dhananjay (University of Miami)
• Nevo Aviv (Northwestern University)
• Ohanian Lee (UCLA)
• Pagliari Joseph (University of Chicago)
• Papanikolaou Dimitris (Northwestern University)
• Parker Jonathan (Northwestern University)
• Paul Evans (Ohio State University)
• Pearce David (New York University)
• Pejovich Svetozar (Steve) (Texas A&M University)
• Peltzman Sam (University of Chicago)
• Perri Fabrizio (University of Minnesota)
• Phelan Christopher (University of Minnesota)
• Piazzesi Monika (Stanford University)
• Pippenger, Michael K. (University of Alaska)
• Piskorski Tomasz (Columbia University)
• Platt Brennan C. (Brigham Young University)
• Rampini Adriano (Duke University)
• Ray, Debraj (New York University)
• Reagan Patricia (Ohio State University)
• Reich Michael (UC Berkeley)
• Reuben Ernesto (Northwestern University)
• Rizzo, Mario (New York University)
• Roberts Michael (University of Pennsylvania)
• Robinson David (Duke University)
• Rogers Michele (Northwestern University)
• Rotella Elyce (Indiana University)
• Roussanov Nikolai (University of Pennsylvania)
• Routledge Bryan R. (Carnegie Mellon University)
• Ruud Paul (Vassar College)
• Safford Sean (University of Chicago)
• Samaniego Roberto (George Washington University)
• Sandbu Martin E. (University of Pennsylvania)
• Sapienza Paola (Northwestern University)
• Savor Pavel (University of Pennsylvania)
• Schaniel William C. (University of West Georgia)
• Scharfstein David (Harvard University)
• Seim Katja (University of Pennsylvania)
• Seru Amit (University of Chicago)
• Shang-Jin Wei (Columbia University)
• Shimer Robert (University of Chicago)
• Shore Stephen H. (Johns Hopkins University)
• Siegel Ron (Northwestern University)
• Smith David C. (University of Virginia)
• Smith Vernon L.(Chapman University- Nobel Laureate)
• Sorensen Morten (Columbia University)
• Spatt Chester (Carnegie Mellon University)
• Spear Stephen (Carnegie Mellon University)
• Stevenson Betsey (University of Pennsylvania)
• Stokey Nancy (University of Chicago)
• Strahan Philip (Boston College)
• Strebulaev Ilya (Stanford University)
• Sufi Amir (University of Chicago)
• Tabarrok Alex (George Mason University)
• Taylor Alan M. (UC Davis)
• Thompson Tim (Northwestern University)
• Troske Kenneth (University of Kentucky)
• Tschoegl Adrian E. (University of Pennsylvania)
• Uhlig Harald (University of Chicago)
• Ulrich, Maxim (Columbia University)
• Van Buskirk Andrew (University of Chicago)
• Vargas Hernan (University of Phoenix)
• Veronesi Pietro (University of Chicago)
• Vissing-Jorgensen Annette (Northwestern University)
• Wacziarg Romain (UCLA)
• Walker Douglas O. (Regent University)
• Walker, Todd (Indiana University)
• Weill Pierre-Olivier (UCLA)
• Williamson Samuel H. (Miami University)
• Witte Mark (Northwestern University)
• Wolfenzon, Daniel (Columbia University)
• Wolfers Justin (University of Pennsylvania)
• Woutersen Tiemen (Johns Hopkins University)
• Wu Yangru (Rutgers University)
• Yue Vivian Z. (New York University)
• Zingales Luigi (University of Chicago)
• Zitzewitz Eric (Dartmouth College)
Malcolm A. Kline is the executive director of Accuracy in Academia.
