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Tim Chapman :: Columnist
A Rescue Plan That Didn't
by Tim Chapman

Thank goodness Congress approved that bailout. Otherwise, the economy might be tanking.

Just a couple of weeks ago, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke asked Congress to approve a $700 billion rescue of the banking industry. Without this sudden, massive infusion of federal cash, we were told, economic disaster loomed. Prompt approval, on the other hand, would assure the solvency of the financial sector, thaw frozen credit flows and give investors a badly needed dose of confidence.

In the end, Congress approved the package -- seeing as how the alternative was rising unemployment, a plunging stock market and corporations unable to borrow to cover their short-term obligations. Now, with the bailout proceeding according to plan, Americans are confronted with rising unemployment, a plunging stock market and corporations unable to borrow to cover their short-term obligations.

That is not how things were supposed to go. On Sept. 25, The Washington Post endorsed the administration's effort, warning that the nation faced a replay of 1929.

"This catastrophe can be avoided," said the editorial, "and it will be if government promptly and effectively addresses the immediate cause of financial distress -- the toxic build-up in unmarketable mortgage-backed securities on bank balance sheets." (My emphasis.) The Treasury plan, it said, fit the bill.

But the effort to restore confidence and stabilize markets turned out to be, pardon the expression, a bust. After the bailout was signed into law on Friday, Oct. 3, investors had all weekend to contemplate its tonic properties but found none.

On Monday, the stock market looked like it had been pushed out of an airplane. The Federal Reserve was so alarmed by the credit situation that it decided to take the radical step of lending directly to businesses.
The feds had decided to fill the markets with enough cash to burn a wet mule -- only to see it have no apparent impact whatsoever. But we could have had no impact whatsoever for a lot less money.
The rescue surrenders an important principle: that private sector mistakes should be borne by the people who make them. If the bailout means we may all get the bill anytime a company implodes, it will undermine the critical incentives of the market. In the long run, that will not strengthen the economy but weaken it.

Interesting to see MSM.....particularly Townhall, taking a shot at the fegov in layman's terms!:thumb:
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