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Until last week, it seemed that one only needed a couple of PhDs in monetary economics and finance to make head or tail of what was going on in financial markets. It now seems that a PhD in political science would come in useful, too.

But, firstly, should the US government be talking about committing $700bn of taxpayer funds to bail out the US banking system? The Archbishop of York, in a speech devoid of serious analysis, suggested yesterday that if this money could be found for the bankers, then money should be found to reduce poverty in Africa.

In fact, while the US government is making a commitment of $700bn, over time considerable value will be realised from the assets they buy and any losses will be much less than the headline figure.

Nevertheless, Bush’s plan is not the way to go about solving the current crisis. After all, this chapter opened when Freddie Mac and Fannie Mae – two institutions that were far too close to the government for their own good – went under. The US government will be creating another vehicle, which will be with us for the long term and under government control, full of poorly constructed financial instruments.

The President himself has said that we have to do whatever it takes to deal with the current crisis and then look at the underlying problems at a later date. As Ronald Reagan once said, the problem is that “government programmes, once launched, never disappear… a government bureau is the nearest thing to eternal life we will ever see on this earth”. Sixty-five years on, we are still suffering from President Roosevelt’s misguided response to the 1929 crash – part of which was the creation of Fannie Mae…

Philip Booth 154x154

Academic and Research Director, IEA

Philip Booth is Academic and Research Director at the Institute of Economic Affairs and Professor of Finance, Public Policy and Ethics at St. Mary's University, Twickenham. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. Previously, Philip Booth worked for the Bank of England as an advisor on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs and on the editorial boards of various other academic journals. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

8 thoughts on “Thumbs down for Bush’s bailout”

  1. Posted 26/09/2008 at 15:48 | Permalink

    Excellent post; at least someone is speaking sense about the credit crunch. One reason the free market has been so successful in so many places over so many years is because business enterprises are allowed to fail. If that ceases to happen then stasis and decline will follow.

  2. Posted 26/09/2008 at 15:48 | Permalink

    Excellent post; at least someone is speaking sense about the credit crunch. One reason the free market has been so successful in so many places over so many years is because business enterprises are allowed to fail. If that ceases to happen then stasis and decline will follow.

  3. Posted 28/09/2008 at 17:08 | Permalink

    Thumbs up from me for Bush.

    I suggest the issue is about people providing banking and mortgage services for people and not about profit solely.

    Yes mistakes have been made and the real unjust profiteers should perhaps be punished but not millions of poor people.

    I suggest that the free market has never actually been free in this country, the state has always had to pick up the bill for failure to provide for one’s future in the way of our social budget of some £100 billion or so.

  4. Posted 28/09/2008 at 17:08 | Permalink

    Thumbs up from me for Bush.

    I suggest the issue is about people providing banking and mortgage services for people and not about profit solely.

    Yes mistakes have been made and the real unjust profiteers should perhaps be punished but not millions of poor people.

    I suggest that the free market has never actually been free in this country, the state has always had to pick up the bill for failure to provide for one’s future in the way of our social budget of some £100 billion or so.

  5. Posted 29/09/2008 at 08:24 | Permalink

    Geoff, surely millions of poor people are going to be punished by being forced to $5000 extra tax to bail out some very rich bankers; this is a direct tranfer of wealth from the poor to the rich.

  6. Posted 29/09/2008 at 08:24 | Permalink

    Geoff, surely millions of poor people are going to be punished by being forced to $5000 extra tax to bail out some very rich bankers; this is a direct tranfer of wealth from the poor to the rich.

  7. Posted 06/03/2009 at 07:39 | Permalink

    For Africa to crawl out of poverty, good governance must first all be realized. Otherwise all the efforts being done by different organisations will not achieve anything in the presence of dictators and corrupt leaders. On a positive note, it is important to point out that some countries (Botswana, Mozambique) are doing well in the area of good governance.

  8. Posted 06/03/2009 at 07:39 | Permalink

    For Africa to crawl out of poverty, good governance must first all be realized. Otherwise all the efforts being done by different organisations will not achieve anything in the presence of dictators and corrupt leaders. On a positive note, it is important to point out that some countries (Botswana, Mozambique) are doing well in the area of good governance.

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