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You are here: Home / News / Madison economist disagrees with bailout

Madison economist disagrees with bailout

September 25, 2008 By WRN Contributor

There's not unanimity among economists, on the need for the financial services bailout. President Bush , Treasury Secretary Hank Paulson and others claim the $700 billion loan package is needed, to prevent financial catastrophe. Many members of Congress remain unconvinced, as does Dr. Mary Schranz, an economics professor at Madison Area Technical College. Schranz cites two reasons for opposing the bailout. "One is that it is just certain financial institutions that are facing possible losses, because of the subprime mortgage loans, and the mortgage backed securities. These financial institutions definitely are facing some losses, but the long term cost to the taxpayer is much greater than what's being stated," says Schranz, who says an projection for the federal deficit next year are nearly one trillion dollars. "This is a big number," says Schranz. "The government is currently in a deficit mode. We don't have the money to do this bailout, so we must borrow the money from other investors . . . and the long term cost of the bailout is starting to look very large."

 

How large? How about $2,000 for every man, woman and child in the U.S. "But, apparently, there are some other potential costs that could come along with this bill, so it's not clear what the exact costs to the taxpayers will be." And Schranz believes the urgency of the situation may be being blown out of proportion. "Some financial institutions do have big losses, but there are some very profitable banks that are still out there," she says. "And we see some of the financial institutions that did not lend in the subprime mortgage market. They have money, they're profitable, they will not fail."

With retiring baby boomers placing financial strains on entitlement programs, Schranz says now is a risky time for the nation to build up a high level of debt. "There is risk to certain financial institutions. It depends on a person's perspective on whether the taxpayers should bail out these institutions, but the taxpayers are the ones left holding the bag."

AUDIO: Bob Hague interview (9:25 MP3)

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