In the past week, 11 Penn faculty members joined hundreds of economics professors from around the country in writing to Congress to express their opinions on the $700 billion bailout bill the Senate passed last night.
This package -- a revision of which was defeated in the House of Representatives on Sunday - proposed a rescue plan in which the government would buy the bad assets of several financial institutions in order to stem the recent financial turmoil.
When the initial bill was proposed last Wednesday, nine Penn professors signed a letter with more than 200 other economists that objected to the bill's burden on taxpayers, its ambiguity on matters of oversight and the potential long-term ramifications.
The letter expressed that although the signers were "well aware of the difficulty of the current financial situation" and agreed that "bold action" is needed to remedy the problem, they saw several serious drawbacks to the plan.
Legal Studies professor Martin Sandbu explained that the plan was a subsidy for investors who make risky decisions and that they must bear the losses rather than receiving "golden parachutes" from the government.
"The government can ensure a well-functioning financial industry . without bailing out particular investors and institutions whose choices proved unwise," the letter stated.
Many specialists were also concerned that the decision was too rushed and that consequently, the details of the proposal were too ambiguous.
"A little more thought and open debate about possible measures would be welcome," said Management professor Adrian Tschoegl, adding that he feared "a misdiagnosis of the problems," and not enough oversight of those controlling the money.
Additionally, professors voiced their concern that the original proposal placed too much power in the Secretary of the Treasury's hands.
"The regulatory response initially tabled would have given one individual sole discretion to unconditionally spend $700 billion to buy opaque financial assets with limited oversight or monitoring," Accounting professor Gavin Cassar wrote in an e-mail.
Most importantly, professors emphasized that whatever plan is implemented in this time of crisis is going to have permanent effects on our country's economic future.
Tschoegl drew a parallel between the proposal and Franklin Roosevelt's response to the stock market crash of 1929.
"Much of what [FDR] did actually extended the Great Depression and made it worse," he said. "The consequences are still with us."
Yesterday, however, another group of economics professors - albeit a smaller list - signed a letter that supported the newest bailout package because of the gravity of the situation.
The letter, which included the signatures of Operations and Information Management professor Howard Kunreuther and Management professor Sidney Winter, said that government intervention could "restore confidence and galvanize the private sector to take mutually reinforcing and economically beneficial actions."
Either way, it seems that most professors agree action is necessary.
"We are talking about the most significant government intervention into the financial markets since the aftermath of the Great Depression," Cassar wrote in an e-mail. "Let's get this right."
