CHAMPAIGN, Ill. - The troubled U.S. economy is bound for dangerous, uncharted territory unless Congress acts swiftly to resurrect a bailout plan to prop up crippled credit markets, a University of Illinois economist says.
J. Fred Giertz, the interim head of the university's economics department, says no one knows exactly how badly the economy could sink because the nation has not faced a financial crisis this severe since the early days of the Great Depression.
"A few people think it might not be all that bad, but do we want to risk such an experiment now?" said Giertz, a member of the U. of I. Institute of Government and Public Affairs.
Talks continued today to get the $700 billion rescue package back on track after the House voted against the bill Monday, triggering the biggest one-day sell-off on Wall Street since the 2001 terrorist attacks.
Giertz says Congress needs to act quickly to avert further damage to an economy that has been limping since a subprime mortgage crisis shook credit markets more than a year ago.
"The sooner Congress acts the better, but there will still be a painful period of adjustment and eventual recovery," he said. "The question is do we want this period to last a few months or a year or for 10 years?"
Giertz says the hastily crafted bailout plan voted down by the House isn't perfect, but would be a good step toward warding off a steep economic meltdown.
"There is a saying that the perfect is the enemy of the good," he said. "The plan was far from perfect, but if we wait for the perfect plan it may never materialize. In any case, most of the details of the bailout will have to be worked out when the plan is implemented by the Treasury."
Politics were likely behind the measure's defeat in the House, Giertz said. The notion of bailing out wealthy Wall Street firms is unpopular with voters, and with an election just weeks away, House members "are looking for political cover," he said.
Giertz says House Speaker Nancy Pelosi also likely shares the blame, making the bailout a partisan issue by pinning Wall Street's woes on Republicans while other congressional leaders have emphasized the bipartisan nature of the compromise.
"I think the failure was in part a payback by the House Republicans," he said. "I expect they will eventually come around."
Giertz says there is a serious misunderstanding of the bailout among the public, who wrongly see the measure as a rescue for Wall Street while average Americans are still struggling financially on Main Streets across the nation.
"The bailout is not being carried out because the financial firms are deserving," he said. "It is being carried out to protect the broader economy that everyone has a stake in. The bailout is to keep the problem from spreading, which would undermine pension funds, retirement accounts and businesses outside the financial sector. How much as we willing to punish ourselves to punish the people responsible for the problems?"
Editor's note: To contact J. Fred Giertz, call 217-333-0120; e-mail jgiertz@illinois.edu.