GRAND FORKS -- "Go for broke" is an expression used by gamblers making their last desperate throw of the dice to avoid bankruptcy. That is a perfect description of Congress's bailout plan.
There are many reputable economists and financiers who predict that the bailout plan will not work because it does not address the real problem, which is the credit crunch.
The unwillingness of banks to make loans to people, big and small businesses and fellow banks is the underlying cause of the credit crunch. The governor of California is asking the U.S. treasury for a loan to pay the state's routine bills. California's normal lenders refuse to make these loans because they fear California may not pay them back.
The bailout system will give money to banks for toxic loans, but will the banks make new loans to people, businesses and so on who piled up massive debts? The debts will still be there, but now the U.S. treasury will own them. The banks fear that we will not repay our new loans, and they will be left holding bad debt yet again.
The economy is already in a downward spiral; layoffs are increasing every month, which means more foreclosures, more loan defaults and more business failures, which will accelerate the downward spiral.
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If the bailout fails, what is plan B -- where is the safety net? Will the Treasury Department cancel all toxic loans in one final desperate attempt to save the economy? Department and Federal Reserve officials have obviously peered into the abyss, and they are scared witless.
Bush says he is not concerned about his legacy because future historians will pass judgment on him. That's true -- but if the economy crashes, future historians may label him the Herbert Hoover of the 21st century.
Edward Halas
