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McClatchy Washington Bureau | 09/26/2008 | Economists say House GOP plan would be ineffective, costly

...it wouldn't reduce the crush of homes in or near foreclosure, said Simon Johnson, a professor at the Massachusetts Institute of Technology. That's a problem that will surely grow worse if the U.S. economy enters recession, leading to greater job losses, which feed a vicious downward spiral of even more foreclosures and defaults on car loans and credit-card debt.

Americans are spooked by talk that financial Armageddon awaits.

The global financial system nearly melted down last week when investors pulled out en masse from money market funds and the short-term debt markets that help corporate America fund its day-to-day needs.

These traditionally have been viewed as safe investments for ordinary Americans, so the flight from them struck fear in the hearts of policymakers.

Few economists, including Galbraith, are willing to discount completely the chance of a financial collapse, given the turmoil in credit markets and banking.

"My sense is it will delay a disaster, given that you only have three months left in this administration. But it will not cure the problem in the (financial) industry or prevent the shakeout and downsizing of the industry," Galbraith said.

Many lawmakers also expressed skepticism.

Coming out of the White House on Thursday, the ranking Republican on the Senate Banking Committee, Alabama's Richard Shelby, held up what he said was a five-page list of economists opposing the rescue plan.

"This is not me. This is economists at Harvard, Yale, MIT, University of Chicago, our leading universities," an exasperated Shelby told reporters. He called the administration plan "flawed from the beginning."

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Graphic: (c) 2008 MCT; source: Dallas Morning News Research; Troy Oxford, the Dallas Morning News