Economist: Bailout will not solve problems

SMU economics professor and best-selling author Ravi Batra doesn't stay quiet when he smells a rat.

When Batra talks, alarms often go off.

And, just after Batra finished telling a government class that President-elect Barack Obama won’t be able to turn around the economy for at least three years, the fire alarms at Eastfield College went off early Tuesday morning.

For Eastfield students, it was the second day in a row that fire alarms had sounded.

For Batra’s students, alarms are nothing new.

Batra, known for writing The Great Depression of 1990, doesn't like the government bailing out the banks.

Batra, who also spoke recently at Richland College, said the United States is facing a terrible credit crisis, and the bankers have done it again. He doesn’t think Obama’s new economic team can immediately make a difference.

“Because there will be another election in two years,” Batra said. “It will take two or three years.”

Batra, author of The New Golden Age: The Coming Revolution against Political Corruption and Economic Chaos said making a living and investing will be difficult because of corruption.

"Whenever a crisis appears, Wall Street jumps to the front row to profit from it," Batra said. "America, wake up and say no to the worst plan yet devised for crisis profiteering."

The often-controversial author said that instead of solving a problem in the housing market, the bailout money is going to the wrong people and institutions.

"It is an old habit of Wall-Street brokers and financiers first to generate a crisis and then to profit from it -- a practice that may be called crisis profiteering," Batra said. "They have engineered another bailout with the help of a prominent financier Hank Paulson, the former CEO of Goldman Sachs. The $700 billion rescue plan is the biggest boondoggle of all time. The bankers will come out smiling but the public has to foot the bill. It will not even solve the economic problem, which stems from excessive deregulation that was once championed by Goldman Sachs and Hank Paulson himself. So now he comes to the rescue of his buddies."

Batra, who has been battling the bailout since the idea emerged this fall, said deregulation has spawned a culture of speculation.

"Once the dust settles a bit, speculation will surge again; so oil could make a comeback and scorch the economy," Batra said. "The government will have to borrow a lot of money; that will raise interest rates. Thus the bailout could sicken the entire economy. The slump could then spread from financial institutions to the rest of the nation. In any case, the bailout should be limited to troubled banks, which are the lenders."

Batra, who has also written The Great American Deception, The Crash of the Millennium, The Downfall of Capitalism and Communism as well as Stock Market Crashes of 1998 and 1999, questions the thinking behind the bailout.

"Why should we bailout Wall Street firms like Goldman Sachs or Morgan Stanley that are the borrowers? The government wants to unfreeze the credit system; so then rescue the banks, i.e. the lenders. Why rescue the reckless borrowers like Goldman Sachs and others?"

Batra wants Congress to take another look and solve the real problem.

"What should we do? The current problem is not with banks and financial institutions, but in the housing market," Batra said. "So the remedy should be applied there and nowhere else. There should be a partial bailout of harried homeowners who cannot pay their mortgages. They should be penalized somewhat for their reckless borrowing but still rescued for the sake of the economy.

"If homeowners are able to make timely payments for their home loans, the banks will be paid and their loans will be secure," he said. "The banks will have a healthy balance sheet and will not need any rescue. The housing-market will also stabilize. If some banks still fail, then the FDIC will come to their rescue. The total cost of the home-owner bailout will be less than $500 billion, a fraction of what the government has promised to spend on its multifaceted bailouts -- Bear Stearns, Freddie Mac, Fannie May, AIG and now the entire financial sector.

“What he said is true,” Eastfield College political science and history teacher Stacey Jurhree said. “It is the corruption of our leaders. Not just at the federal level. At every level. Look at the Dallas Independent School District. And, in Lancaster, there is corruption. It is everywhere. Our leaders have become corrupt.”

Dr. Juhree said he was impressed with how Batra challenged a myth about wages.

“You always hear how increasing wages will cost people jobs,” Juhree said. “What he showed was that if you increase wages, you increase jobs.”

Batra said the country will go through some pain.

“We are moving toward a new Golden Age,” Batra said. “There is some hope.”

Batra advised not investing any money right now unless buying gold.

“You can get into gold with a bit of safety,” Batra said.

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