Diary

Quote Of The Day

Has the postwar consensus in favor of the mixed economy (market driven economies with variably modest social redistribution) come to an end? If so, what might follow it? The answer, based on a few months’ experience with bailout programs all over the world, appears to go something like this: largely unregulated government bailouts, rampant regulation, and short-sighted policies grounded in panic and ‘actionism’, rather than reason. The Treasury’s $700 billion bailout package was just the beginning.When the state decides to move into markets in a big way, but doesn’t know what that way should be, this sort of result should be expected. Treasury ‘desperately’ needed $700 billion to buy risky mortgage assets; then it didn’t. Now, Secretary Paulson wants to cut foreclosures and perhaps buy-down mortgage rates across-the-board, and needs more money to do it. And even that is small potatoes pending the Obama-Geithner team takeover. The New York Fed kept AIG afloat with $85 billion in loans, followed by a Treasury-Fed restructuring with an additional $40 billion; this time in AIG equity.

The Big Three may get a ‘car czar’ as the condition of a staying-alive loan, but they’ve failed to access the official bailout action (‘Asset Recovery’) program. Still, General Motors’ finance arm, GMAC, might. GE Capital got $139 million in guarantees from the FDIC. Then there’s Citibank. Now auto-loan financers, credit card issuers (AMEX), auto-parts suppliers, Avis rentals, student loan financiers, and state and local governments (big cities especially) are queuing up as well. Is it any wonder companies are forming bailout breadlines, extending their palms for taxpayer largesse awarded with zero discretion and unintelligible standards?

These bailouts have all the earmarks of capitalist excess, made stratospheric by the invocation of state power. It’s bad enough to ‘gamble’ Uncle Harry’s retirement on bundles of mortgage-backed securities, it’s quite another to put the credit of the U.S. government at risk–not just picking winners and losers in the financial turbulence, but doing so with no market discipline, little knowledge of pricing, and no clue what the industries of the future will be.

—-George A. Pieler and Jens F. Laurson. I wonder how long it will take before we gain some sanity and perspective on these issues.