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Questions Remain on Bailout Plan as House Prepares to Vote Anew

The Senate on Wednesday approved a financial rescue package that could cost up to $700 billion -- the largest government intervention in U.S. history. Analysts discuss whether the plan will be enough to fix the ailing economy.

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    If lawmakers approve the bill tomorrow, the package would be the largest government intervention in history.

    The government would be allowed to buy up to $700 billion of bad debt in phases; Congress could deny Treasury's request for half the money.

    It could raise the amount of bank deposits insured by the FDIC from $100,000 a person to $250,000. And the government could allow the FDIC to temporarily borrow money, as much as needed, from the Treasury.

    And it could encourage the Treasury secretary to restructure any mortgages bought by government that may be in danger of foreclosure.

    To what extent does this plan help solve the problem? We get three perspectives. They come from Scheherazade Rehman, who has written about financial crises and advised a number of institutions, including the World Bank and central banks. She's a professor of international finance and business at the George Washington University.

    John Cochrane is a professor of finance at the University of Chicago. He helped organize a letter signed by 200 economists questioning the design of the Paulson plan.

    And Ken Rogoff is a former chief economist for the IMF. He's now a professor of public policy and economics at Harvard University.

    And, Professor Cochrane, in your view, does the modified bill — the one that's going to head up for a vote tomorrow — address some of the underlying problems in the securities and credit markets?

    JOHN COCHRANE, University of Chicago: No. I think the modified bill is, in fact, worse than the original bill. Many of the modifications are either counterproductive, hugely expensive, or a pinata full of ridiculousness.


    And explain that, "a pinata full of ridiculousness"? Are you referring to the things that were added in order to get those extra votes?


    Yes. For example, deep in there, there's a subsidy for bicycle commuting. But more importantly, the parts that are going to be counterproductive are very expensive.

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