The Ultimate Bail-Out
They arranged the bail-out of Bear Stearns; then they nationalized Freddie Mac and Fannie Mae; now, they are surprised to see all eyes on them as Lehman Bros. flails in desperation.
[Thanks to Veronicabelmont.com for the image.]
They will have to do something again. They have signaled to the world that they will not let these "too-big-to-fail" companies die, even though they deserve to. Moral Hazard has finally erupted into the monster everyone warned it was going to be.
Officials can argue until the last financial institution croaks that the monetary system could not have withstood the pressure; but all they have done is parcel out the torture. To borrow a friend's expression, it's like cutting off the tail of a dog one joint at a time to save him the pain of losing the whole tail at once.
When will we learn that politicians cannot control economies, that government intervention is guaranteed to run amuk every time?
In the end, the biggest bail-out of all time will be sponsored by us all, the U.S. taxpayers. The working stiffs, the employed, the self-employed, pensioners, the forgotten hords, even the people on unemployment--we'll all be paying for this down the line, when we are called upon to bail out our government for having gotten us into so much debt.
This story isn't over yet, my folks. Real estate hasn't bottomed out yet; companies are not hiring; investment has slowed; credit is still tight (as it should be after so much looseness). We will be paying the bill for this one for years to come.