As Michael mentioned, the issue of a bailout of financial firms holding so-called "toxic assets" on their books was raised at the Town Hall meeting last night. We discussed both sides of the matter, but failed to reach a definitive conclusion. The Treasury's proposed bailout has been amended from its original version; rather than having the federal government purchase the securities directly from the ailing financial firms as was initially suggested, the Treasury would, in effect, act as an insurer and provide security to private firms that buy the assets.
Our discussion at the meeting centered primarily around the issue of whether or not the Treasury Department should be proposing the package at all. Economists have weighed in on both sides of the issue. A plethora of economic heavyweights have voiced opposition, based on a number of factors. Two primary issues that they have taken with the plan are as follows: 1) the seemingly unwarranted burden that would be placed on the average American through taxes to finance the deal, and 2) the concern over a case of moral hazard being presented to the firms bailed out.
Conversely, the plan has been defended on a number of fronts. A compelling argument in favor of the bailout plan would seem to be the potential danger posed to the greater American economy if such a deal were not enacted. It is constructive to note that many financial institutions as well as other corporations have significant portions of their assets tied up in credit markets, some of which remain frozen. If these firms are not able to gain access to cash, we could very well see a leftward shift in aggregate demand, resulting in inhibited growth and income per capita.
Addendum: Insurers in the private sector use statistical analysis to calculate the expected value of a given event occurring, and base premium payments on that calculation in an attempt to make a profit. Although the Treasury is certainly not trying to turn a profit from this deal, I'd be interested to know their calculation of an expected value of the further depreciation of these assets after their transfer.