Bailing Out the Bucket Shops

Obama’s Expensive Status Quo

Since September 2008 an awful lot of Americans have lost 40 to 50 percent of their net worth.  According to Bloomberg News, the federal government, during the same period, has committed $11.3 trillion in loans, guarantees, and investments to bail out the financial system.  The Obama administration believes this effort will help the overall economy and save jobs.  The problem, however, is that it is impossible to show that this vast effort will actually help the economy.  The downside is clear, but the upside is not.  MIT economics professor Simon Johnson believes what we are facing could “be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big.”  Almost all countries are showing “a weakening of confidence among individuals and firms, and major problems for government finances.”

The public, meanwhile, believes the federal bailout is primarily helping the bankers and others whose poor behavior caused the trouble.  The Obama administration, as a consequence, has felt obliged to proceed without going to Congress to give its effort democratic legitimacy.  Instead, it has used the Federal Reserve and FDIC to create ten trillion dollars of its support.

Both the Bush and Obama administrations decided they would not let the bankrupt go bankrupt.  Natural forces, if allowed to work, would quickly put the...

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