The American Freedom Network

Too Big to Fail?

The government is bailing out Fannie Mae and Freddie Mac. They had a hand in saving Bear Stearns, too. This is not good. If companies can keep 100% of the profit they make from risky decisions, but can get the taxpayer to pick up the tab for their mistakes, then we have what economists call ‘moral hazard.’ There will be an incentive to make risky decisions, to look for the fast buck, to do things that you wouldn’t do with your money, becuase they’ll be doing it, not with their money, but with yours, since the government becomes the Rescuer of Last Resort. We’ll have an economy like China’s, where the government pays for foolish decisions, propping up bad investments, and planting the seeds of a crash.
The same principle applies to a mortgage bailout. No one forced families to buy McMansions. If they can’t afford them now, best to take their lumps and move to cheaper digs. Bailing out homeowners ultimately is corporate welfare, too, since we’ll be propping up the lenders who put unqualified customers into houses they couldn’t afford, and the builders who built them, et cetera.
The one successful bailout in American history was the Chrysler bailout. This exception proves the rule. Chrysler had a new, charismatic, brilliant CEO – Lee Iacocca – and a new product – the K-Car – in the pipeline, ready to go. That happens very rarely. Chrysler also took pains to pay off their loans ahead of schedule. I doubt that we’ll ever see a penny from Bear Stearns, Fannie or Freddie.
The Day of Reconing is thus postponed, but when it comes, Kipling’s Gods of the Copybook Headings will wreak even more havoc than they would have, as a result.
-Lloyd A. Conway