Doug Thompson

Let’s get one thing straight about the home mortgage bailout.
This has nothing — nothing — to do with helping individual homebuyers. The bailout is for the financial institutions that hold the paper on the lousy loans.
That’s common knowledge. I just had to say it out loud because I’m so sick of congressmen and newscasters talking about doing more for the homebuyers.
There’s a much deeper, wider problem here.
I’m old enough to remember the savings and loan bailout. I remember how those savings and loan businesses were considered mavericks.
Now I’m witnessing an even more enormous bailout. This one concerns the financial mainstream — core financial institutions. This is Wall Street we’re talking about here.
I humbly suggest that big American business has discovered that it will not be allowed to fail, and that this has some pretty dire consequences.
I don’t offer proof here, but let’s engage in some rampant speculation.
How much did the American auto industry’s grotesque failure to change with the times stem from their own hubris, and how much was that hubris reinforced by the unspoken knowledge they would never be allowed to fail? Well, at least not all at once?
How much of our dead-end dependence on oil is fostered by our fear of hurting the economy? As I rather coldly put it in an office discussion, maybe we’ve gone so far down this path that we can’t get off it now until the economy is truly destroyed.
Call me an alarmist, but the Soviet Union collapsed because nothing that carried the government’s blessing was allowed to fail. I’m having an increasing difficult time telling the difference between a corrupt state-run economy and an open one in which failure is bought out by the government.
Paul Krugman, one of the New York Times most liberal columnists, was on to something this week. He was describing the whole Fannie May-Freddie Mac government mortgage bailout scenario when he said, “that profits are privatized but losses are socialized. If Fannie and Freddie do well, their stockholders reap the benefits, but if things go badly, Washington picks up the tab. Heads they win, tails we lose.”
That’s becoming a good description of federal economic policy.
As many a bankrupt small-businessman can tell you, though, you have to be a pretty good size to qualify for government guarantees of immortality.
Perhaps that’s part of the reason small business creates more jobs. It still lives in an environment where only a well-run business can thrive and even then it’s chancy.
Ronald Reagan used to joke: Democrats think that if it moves, tax it. If it keeps moving, regulate it and if it stops moving, subsidize it.
Now the joke would run that if it moves, ignore it. If it keeps moving, take credit for it. When it finally wanders over the edge of that cliff, organize a rescue.
Many years ago I read a description of why a financial trader loved his job. He said the markets didn’t care who your daddy was, how long your family had been in business or what school you went to. If you weren’t at the top of your game, you got your rear-end handed to you on a platter.
That’s simply not true any more.
I’d also point out that the market’s reaction to government bailout announcements appears to be tied directly to investor confidence in the government’s competence.
Look at the market reaction to the government’s decision to back up Fannie May and Freddie Mac on Monday. In the first place, that announcement stated the obvious. Nobody expected the government to stand aside and let either of those mortgage programs fail. The fact that the government felt it had to make that explicit wasn’t very reassuring. Second, the value of the dollar slid. That’s because the U.S. government, which prints the U.S. Dollar, announced further exposure to risk.
We have a collapsing auto industry, a weak dollar, a war, a vast trade deficit mainly because of oil, and a recession. And our government has to keep making guarantees.
Frankly, we also have a president who doesn’t exactly inspire confidence.
Government guarantees are over-stretched, and not nearly as reassuring as they once were.

Categories: Features