More than 180 economists, including David Levine and Michele Boldrin from Washington University, have signed a letter opposing the $700 billion financial bailout now before Congress. They see “three fatal pitfalls” in Treasury Secretary Henry Paulson’s proposal: Its fairness, its ambiguity, and its long-term effects on the economy.

Under the fairness heading, the letter says:

The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

The economists, who include three Nobel laureates, are especially worried about the long-term effects:

If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America’s dynamic and innovative private capital markets have brought the nation unparalleled prosperity.  Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

In a post on Against Monopoly, Levine further explains his views:

Can I imagine a better prescription for political corruption? I’m not imaginative enough. I’m imaginative enough to think that however good the intentions of the (politically appointed) Secretary might be, the people who do the buying and selling will feel sympathetic to their friends and will want to do what they think the boss man would “want them to do” towards his friends. Some will not give in to the temptation. Others will.