I have this image in my mind of an American cowboy: Rugged, independent, self-reliant. I picture him on a cattle drive, depending upon only his own wits, his horse, and his trusty Winchester to get by.
This vision of the American past is fast becoming a myth, rendered moot by the present day cowboys. The difference between the two — not the smell, which is surprisingly similar — is that the current cowboys have a different cavalry in their back pockets: Uncle Sam.
Indeed, as time goes on, we have become less independent, and more reliant upon the Federal Government — especially the Federal Reserve — for Bailouts.
I’ve been pondering this for some time now, and the longer I think about, the longer the list grows.
Consider the following:
– Great Depression
– Chrysler (1979)
– Steel Industry (date ?)
– National Flood Insurance
– Savings and Loan Crisis – RTC (1980s)
– 1987 Crash
– GSEs: Fannie, Freddie & Sallie
– Legislative Bailouts (SLRA, TCRA, CFMA, Med Part D)
– Long-Term Capital Management (1998)
– Farm Subsidies (run amuck)
– Airlines (post 9/11)
– Post "Dot Com" crash (2001)
– Hurricane Hugo, Andrew, Katrina, and other not-so natural disasters (1989, 1992, 2005)
– Housing (2007)
– Bear Stearns (2008)
– Sub Prime (continuing)
What other bailouts have I missed?
There must be dozens. I am particularly interested in those situations where the profits were private, but the assumption of risk is public.
What say ye?
what’s the big deal? we’re all better off for it.
FHLB, Fannie Mae, Freddie Mac…oops, those bail-outs haven’t technically taken place yet…but they’re coming.
90% plus of all residential fundings are now either GSE (fannie and freddie), or explicitly government backed (FHA, Ginnie Mae, etc.) The uncle is the only game in town.
The FHLB is funding the short end. CFC’s borrowed nearly $100 billion since last August when the CP market shut down. Citi’s well into hock as well.
I just closed a fixed second on a property in a subdivision where, of 31 lots, only one is occupied. Eight have homes that were builit but haven’t sold in two plus years. Yet whomever funded it (Fannie?) thinks the property is such good collateral that the interest rate was 6.375%–on a second!
Some kind of ruggedly individualistic capitalism we’ve got here.
Don’t kid yourself, a well connected cowboy did better then as well. I have no problem with the concept of bailout, if it is deemed necessary for the society as a whole. The problem I have is that on Wall Street, these “cowboys” have been preaching to everyone about the risk-reward curve. The reason their compensation is so out of whack is because of the risk they have taken, thus they get their just rewards. Fine. You win, you keep your house in the Hamptons. But if you lose, there should be a penalty. The flow of money from Main Street to Wall Street is a perversion of all free-market ideals. All of these leveraged cowboys should be wiped out first, then you can begin to talk about bailing out critical institutions.
I agree 100% Barry, and want to add to your image of the lone cowboy the less savory flipside to the archetype depicted by Daniel Day Lewis in There Will Be Blood. In the absence of government, great good and great evil are both likely outcomes, but at least the word “great” applies. When we use our collective, pooled wealth to backstop private enterprises, the profit incentive is diminished for every would-be entrepreneur, be they good or evil. The result is mediocrity, and I for one would rather worry about the bad men out there than have the money I earn magically end up in some Bear Stearns executive’s pocket. I’m really upset at the way things are going with these bailouts.
The socialist in me would argue that some of those bailouts were of a different nature than others, and that some were more beneficial for the citizenry than others.
The socialist in me would argue that some of those bailouts were of a different nature than others, and that some were more beneficial for the citizenry than others.
HISTORIC REVERSAL: Today was the end of a ~26 year bull-market in bonds? Next stop…
10 year U.S. Treasury Note yeild 5.25% and 30 year U.S. Treasury Bond yeild: 6.25%?
Barry, first let me say that I consider myself very priviliged to have come upon your site about two years ago. Of all the blogs I like, yours is the only one I go out of my way to recommend to others.
I can’t help but think that the way the federal and state governments prop up professional sports franchises should fit into this discussion somewhere. Although this is not really an example of the government bailing out rich people who are on the verge of bankruptcy, it does have the affect of using public money to fund private coffers.
What kind of genious did it take for the ownership group of the Philadelphia Phillies to more than double the value of their business in the last decade? Step 1: Have the city fund an enormous percentage of the cost of imploding current stadium and building new one. There is no step 2. Of course, those tax payers have to pay market rate for the tickets to get into their building. They have to pay market rate–often an immense sum–for the concessions within the building.
This may be a bit off track of what you’re talking about. Loved your post, Barry. I am someone who wishes that our Big Government was smaller in most of the places it’s currently big and bigger in most of the places it’s currently small….
BR: Great suggestion~!
The problem now IMO is that the bailout is figured in to the investment. There is no loss for those in the circle. In their small minds anyway.
They have to realize just like children at some point that dear old mom and dad might not be able physically to bail them out. They push and push until,…they break mom and dad’s back. The U.S. Government is broke. So…the investors are bailing themselves out in reality.
They will be the same guys crying for mercy when Katrina like mayhem breaks out.
how many welfare queens does it take to equal 1 Bear Stearns? 1 S&L Bailout? 1 Airline Bailout?
And, hey, at least the welfare queens are adding to the actual economy when they buy food and goods for themselves and their kids.
I think we have an answer to Taleb’s Black Swan?
The Federal Government (aka the White Swan)
It started with the Panic of 1907. Following that, a call to “do something” was met by the creation of the Federal Reserve in 1913. Roosevelt’s decision to depreciate the currency by 40% was the next step. Nixon shutting the gold window followed almost 40 years later. The decision by Congress to give the Fed a “dual mandate” of both price stability and growth, alone among the major central banks, certainly helped.
Today, the major sin is believing that 7 Fed Board Governors and 12 Regional Bank Presidents can better determine the short term interest rate than the marketplace can. They are price fixers; they fix the short end of the curve in an attempt to – in Chairman Bernanke’s words from his famous Deflation speech of 2002 – “manipulate” the interest rate term structure. In their manic efforts to find the elusive rate that balances both price stability and growth, they constantly overshoot in both directions. This causes instability rather than being the stabilizing force that the Fed, the press and most analysts all believe it to be.
Let the Fed be the lender of last resort, but stop monkeying around with the short end of the curve. Target a money supply quantity and let banks learn to deal with a world where the interbank rate is set by… the supply and demand of credit between banks. This seems like a better solution than letting the Fed do so. And this no disrespect to Bernanke, its an indictment of the whole idea that 7 people know better than everyone else (go run a hedge fund if you know what the interest rate should be).
If you’re going to lump in natural disasters in the bail-out column then don’t you have to include wars? I suppose the federal government could have said, “F-you, citizens of Pearl Harbor. You’re on your own…”
I’m all for arguing against bail-outs but the natural disaster thing is taking the argument a bit far.
whine, so where is *my* bailout ? I could dig a few billions in my wallet.
CORRECTION: Today marked the end of an historic ~26 year bond bull-market? Next stop…10 year U.S. Treasury Note yield 5.75% and 30 year U.S. Treasury Bond yield: 6.25%?
Demanding cuts in the fed funds rate no longer satisfies Wall Street. As it is mentioned in the previous thread, they’re demanding bailouts or they’ll bring the financial system to its knees. How pathetic that they have this much control over the Fed, and how embarrassing for BB to be slapped around like this.
The Iraq War 2003 – 2030
I’m recalling a lot of loans to developing countries failing in the late 1970s/early 1980s. The banks needed govt. relief or the sky would fall.
I think the US government bailed out the nuclear industry after Three Mile Island by taking over insurance responsibilities. Without limits on insurance, I believe the nuclear industry would be defunct. We haven’t had a major disaster since Three Mile Island but if (when?) a Chernobyl accident occurs in the U.S., the taxpayers will pay and not the utilities nor the nuclear industry.
The bailouts don’t bother me as much as the hypocrisy does. You can’t on the one hand call for not being taxed and on the other hand demand to be bailed out.
I am sick of the financially very well off refusing to pay their share and then demanding rescue. Enough.
I don’t have the bailouts all memorized, but there were several that you missed which can be read about in the early portion of “The Creature from Jekyll Island”, by G. Edward Griffin.
BR: I think a lot of the deals stadiums have been built under in the last decade+ has the public footing the bill in order to keep the pro sport franchise. Lord knows, those pro sport franchises haven’t depreciated in value…
Thanks Barry – that was nice work you did this weekend on pied-piper Kudlow’s “optimistic Spin” yesterday!
I have been in this country for over a decade only, but I have never seen such a thing – BAILOUT – growing up in a poor 3rd world country like India.
I guess the fed truly does not want to see multiple assets marked-down at the same time – debt, equities and RE. And hence the “creativity” I guess!
Hussman in his weekly commentary is outraged by fed’s backdoor bailout of BSC.
“…In effect, the Federal Reserve decided last week to overstep its legal boundaries – going beyond providing liquidity to the banking system and attempting to ensure the solvency of a non-bank entity.
Specifically, the Fed agreed to provide a $30 billion “non-recourse loan” to J.P. Morgan, secured only by the worst tranche of Bear Stearns’ mortgage debt. But the bank – J.P. Morgan – was in no financial trouble. Instead, it was effectively offered a subsidy by the Fed at public expense. Rick Santelli of CNBC is exactly right. If this is how the U.S. government is going to operate in a democratic, free-market society, “we might as well put a hammer and sickle on the flag.”
“…As for the future of the free markets, Dylan Thomas comes to mind:
Do not go gentle into that good night
Rage! Rage against the dying of the light
The Fed overstepped and the Treasury overstepped. At the point where unelected bureaucrats pick and choose who to subsidize – who prospers and who perishes – in a free capital market, and use public funds to do it, more is at risk than just $30 billion. Instead, we cross a line, and stumble off a very clear edge down an interminably slippery slope. We speak up now, or forever hold our peace.
On the subject of speaking up, the essays in the special section of the Washington Monthly – No Torture, No Exceptions – are worth reading. They come from both sides of the political aisle. I am troubled that as a nation, both in economics and in foreign policy, we have become far too willing to sacrifice principles for what some, I think falsely, perceive to be an increase in security. But once we begin to violate our principles, we should realize that nothing else is secure.
It’s helpful to flatter people before you take their money.
If everyone calls you a rugged individualist/cowboy, after a while you start to believe it. Add in a big scoop of “only bad people fail” type religion and you’ve got a political winner for the powerful.
Blaming your problems on the weak, now that’s what made this country great!
I was struck by your closing charge, that you were looking for “those situations where the profits were private, but the assumption of risk is public.” That being the case, I would add to the calculus the deals that corporations cut with local (city, county, in some cases state) governments prior to their building a new facility or store. For example, the deals that Walmart cuts before they break ground on a new store, in which they get tax-breaks and public expenditures of money (like roads, sewage lines, etc., plus tax breaks for some agreed upon period of time – often 15-20 years or more) using the argument that their store will create jobs. In Walmart’s case, those end up being low-wage jobs with no benefits. And in turn, the big box leads to the closing of smaller enterprises which may in fact have kept money within the economic community. I remember the Marriott corporation did this a few years ago, when they threatened to move their HQ from Bethesda, and the county turned around and gave them some kind of tax-break package to keep them in Bethesda. Turns out the rumor about their moving was just that: a Marriott created ruse to lean on local officials to extend the tax credits that they bargained for in their original deals.
Not quite a bailout, but for me clear examples of public money being used for private profit – often to the detriment of the larger community. This happened a lot in the late 90s and early 00s with call centers – which were built in small communities struggling economically, but when all was said and done, (a) the only jobs available were low-wage with no career ladder, and (b) within a few years, the call centers were shipped to India (or some other US local that was struggling enough to give the company a free ride).
Now, there are times when these kinds of deals can in fact work for the larger community. But there’s got to be some reasonable quid pro quo. For example, ensuring that the jobs being created are family-sustaining jobs, and that there is some kind of career ladder to allow for advancement of new employees. But too often, government entities are giving away the farm (some time literally) with the mere suggestion that some jobs will be created, without thinking about the next steps – or if the public expenditure of money is worth what the company is really offering.
And I guess the quid pro quo issue is the kicker for me. OK, so you want a bailout – what are you going to do for me? Bailout Bear Sterns so they (and similar companies) can go back to business as usual, which is what happened with the airlines post-9/11? When the airlines got their money, they didn’t use it to change how they were doing business, they used it to support executive salaries – and in turn try to break the unions.
Anyway, kudos for raising the question.
Now that Wrigley Field is falling apart and private ownership has studied what the repair costs would be, they want to “sell it to the state of Illinois sports authority”. Aren’t they generous?
The “Federal” in Federal Reserve is one of the biggest scams aside from Social Security that has ever been foisted on the American public. It is NOT at all a part of the Federal Government. It is a private bank owned by the FDIC member banks. Why we have this little fucking charade whereby the president “appoints” the chairman of the FOMC is beyond me. I guess it’s just another brick in the facade of keeping the public stupidly believing that it’s a Federal institution. When we were lucky to have Volcker and others with equal integrity in the chairmanship, there was a fair amount of concern for maintaining price stability and the value of peoples’ savings. In the last 13 years or so those concerns have been tossed down a rat hole. It is now nothing but a tool of the rich to keep enriching themselves further and “fuck all of you worthless little assholes who don’t work on Wall Street or at J P Morgan and aren’t part of the Davos, Switzerland clique. We’re going to keep throwing your savings away on things like worthless mortgages and derivatives and shit like that. When a crisis crops like Bear Stearns, we’ll just counterfeit more money to paper over the mess we made all the while making sure most of that counterfeited money eventually winds up in our pockets. You think we’re going to give back billion-dollar bonuses because we deliberately fucked things up? Fuck you – you’re stupid as hell. If you don’t like it, revolt. If you don’t, you’re all going to be utter paupers when we’re done.”
OK, with that attitude, I guess that’s what we need to do.
Medicare Part D. The pharmas got that deal to include no negotiation of price. Our seniors pay more than the VA for meds. Good for pharma, bad for grandma.
barry = You’ve obviously got all the help a guy could ask for on this post. The sports stadium scam spoke to me since a stadium these days is essentially a TV studio and our local owner is a skinflint billionaire. Rumor has it he slipped on the ice going into a little fete a couple of years ago and his wife just kept walking…
ahem, are you saying i missed the federal cavalry for the dots com ? where are they ? i still have my banks summaries if they need..
In France we had the opposite. Russian debt. just with 1914-18. Losses were private ( and largely french) , but the profit was public( for the new Russian – no, soviet State)
Hey, I’ve got a beaut and it’s fairly new.
The Terrorism Risk Insurance Act AKA TRIA.
I live in a rural area and my nice (HARTFORD) insurance company charges me extra in case someone flies a plane into my hay barn!
We are socialists. It’s the greatest good for the greatest number. Try enrolling your kid in school without his shots. Why do you think we have the FDA, FSLIC, EPA and, well you know the numbers.
Add Sally Mae to the list of possibles as well
You’d have to put all the retirement stuff that is Federally guarenteed as well. That would not only include the Federal Insurance that backs up most corporate pensions that have failed, but also stuff like the Black lung fund (mining) and the railroad pension payout, that is on the books as well.
Also for consideration Medicare part D which saves GM alone almost a billion a year.
TSA for airlines
I’m sure there’s more…
Slight correction to an earlier post on the nuclear power industry– insurance risk on nukes has ALWAYS had a liability cap thanks to Congress. Congress always promised to take care of that little waste problem as well. Without those two guarantees, no nukes would ever have been built.
And as for you “socialists”– remember that socialism means public control of investment. All we’ve got is the old socialization of the losses. Sigh.
The airlines have been getting bailed out since way before 9/11.
1. 40 posts and no one mentions ethanol/ADM ?? A federal ‘bailout’ of Iowa primary farmer/voters that is driving up the price of grains?
2. While I wouldn’t count hurricanes, I would count anyone building on a beach or a floodplain, and then complaining when that once-in-a-hundred-year flood wipes them out every few years. The federal government announces a disaster area, and people rebuild in the SAME LOCATION!!
i’ll argue that going off the gold standard was bailing out politicians/congress/the whole country.
For the record, federal assistance for areas affected by natural disaster (e.g. Katrina) goes back to the 1920s Louisiana floods. Then, the lack of a federal response led to the rise of Houie Long.
Had Roosevelt not introduced the New Deal, you can believe that something similar would have happened at the federal level. Watch “Meet John Doe” some time….
There is no comparison with the charade going on on Wall Street right now. There, a better analogy is with Goodfellas, the scene where the wiseguys are moving appliances out of the restaurant as fast as they’re being delivered. We, the American people, are collectively the restaurant owner watching his business go down the tubes……
As long as we’re having fun with this don’t forget the oil depletion allowance, mining credits, timber and steel subsidies, airwaves, etc. The tragedy of the commons gets performed again and again.
But look, it’s not all economic rent seeking, some of it is intended to stabilize the systems we rely upon for commerce even if there are unintended consequences (and when are there not).
Mostly it’s what Donna said: The hypocrisy is really annoying; we hear all this quasi-libertarian (really proto-fascist) chest thumping from those declaring their laissez faire manliness and entrepreneurial spirit (that, of course, we must preserve at all costs including subsidizing tax breaks) but through the torn veil we are now beginning to see something that looks much more like a huge, corpulent baby that could hardly move its own obscene bulk even if its lips were not fused to the public teat.
Oh the NJ beaches make me mad. They charge for the entry to the beach and the township makes the money, but if the sand gets washed away in a storm, it’s the Feds to the rescue
Brady Bonds…issued in the 1980’s they lasted through the clinton years
The biggest bailout of them all – Defense contractors. In FY 2009 1.449 Trillion out of 2.65 Trillion goes to War/Defense.
54% of the federal budget. The truth is in the footnotes at the link below.
The percentage has been softpedaled ever since Viet Nam. Bad PR to be spending so much on bombs, let’s play with the books…..
No one ever argues against these numbers, they attack the source. A very familiar, and successful, rhetorical tactic.
“When neither the facts or the law are on your side, call the other lawyer an asshole”.
As far as what’s socialized, basically any public service — education, police protection, and even flood control also count.
Bailouts usually seem to occur when the government doesn’t want to mess with the fallout. Its a lot of trouble, so here, have some cash. Go away.
BSC is a case where, probably to this moment, no one knows what the counterparty risk is/was. But the fear was in the abyss dwelt fierce monsters, capable of incalculable havoc. Now its calculable ($30 billion). There. Problem solved. The public can quit paying attention to where its money is going anytime now…
NASA is a great example. R&D was paid for by government and all those profits on the new technology went private. You know those neat heat shield tiles that are a fantastic insulator and would save trillions in energy if mass produced and put in home and building walls? Sorry, that’s a protected patent. A protected patent is a patent that doesn’t run out because it’s related to national security.
By the way, the way our patent laws are written, if you try to patent something the government doesn’t think should go public, you cannot get a patent and you can’t manufacture or market it. The government CAN, however, pay a reasonable amount for your idea.
Off topic but maybe not, I just read in the Daily Grist that Bush has a geothermal energy plant running his ranch. I geuss he knows what’s coming.
…our U.S. situation is called “Mercantilism”
Also known as:
(..and even fascism)
It is the exploitation of the productive economic class by a government-backed parasitic class.
The government “regulates” (controls) key commercial industries in a national economy.
We have the U.S. banking cartel in the news lately, but the Military-Industrial Complex, Agri-Business, etc. operate the same way under government largesse to well-connected ‘capitalists’.
It’s the American form of socialism. Our media loves it.
I don’t have time right now to read all the comments, so I hope someone else hasn’t said this but No. 1 on your list the Great Depression??? Bailout???
BR: It was the attempts at bailouts I am getting at
Hey Big Picture, I don’t agree with one item. What exactly did the dot com bailout consist of according to you?
BR: It wasn’t the Dot Coms that were bailed out, it was the post dot com crash economy that the Fed tried to bailout. They took rates down to 1% and left them there for over a year.
I’ll clarify above
I am not saying that it wasn’t a bailout, but Chrysler paid it back.
Part D wasn’t a bailout … it was a mechanism to bankrupt Medicare.
The Fed bailed out the banks a little over a decade ago. They lowered the borrowing rate below the cost of treasuries so the banks could borrow and buy with a positive spread. The Fed knew there was no stomach for anther S&L type bailout so they found a stealth method for the banks to use taxpayer money.
And what did the public get for a reward? The new bankruptcy bill that turns ordinary citizen into indentured servants to the credit card banks that gave them the credit even when they did not qualify.
I think before the Fed talks about buy underwater mortgages they should first repeal the bankruptcy bill.
In the category of ‘natural disasters’ John McPhee addresses two in the Control of Nature (1990). First, the propensity of rich Californians to build expensive houses up in the forests and hills and public willingness to bail them out from mudslides. Second, the Army Corps of Engineers dike building efforts on the lower Mississippi River that have made it almost inevitable that the river will violently reroute itself down the Atchafalaya river during a serious hurricane. At first glance, this appears to foreshadow Katrina, but then one realizes that Katrina was small beer compared to what awaits.
BR: Exactly — add to it the homes on beautiful but dangerous ocean frontage, with Army Corps of engineers doing alot of unnecessary earth/ocean floor moving, for the benefit of private home owners.
As a taxpayer and responsible citizen, I expect any necessary bailout to be accompanied with a government takeover of the business. The government should audit the books, send the guilty to jail, and then sell the company to a more responsible buyer.
What’s to stop the company from going back to business as usual once Uncle Sam gives them their welfare check?
I’m sure I simplified things for brevity, but that seems to be the jist of it.
Allow me to pre-apologize for the following:
The only difference between this and the previous examples of government intervention in failed business and banking is that this time, the criminals who are reaping windfall profits from the public coffers are in cahoots with the criminals who run our government.
Big oil, big military, big banking, and our government have merged (the evidence is ample, and I don’t want to rant).
It’s fascism pure and simple.
So far it’s been a bloodless coup. But when the populace awakens to the fact that they are poor, the treasury has been looted, and our leaders and their cronies have grown rich from their plunder, the day of retribution will be at hand.
That’s where the cowboys come in. They’re called Blackwater, and they’ve been practicing In Iraq. All 150,000 of them. They order our soldiers around.
If you think this is hyperbole, step back and take a look at what has taken place over the past 7 years, and ask yourself if the essence of America has not been irrevocably changed. Do you recognize your country?
Consider the following, from a man who knew a little sumpin’ sumpin’ ’bout overthrowing a government:
“The best way to destroy the capitalist system is to debauch the currency.”
– Vladimir Lenin
We’d better wake up.
Regarding complicity. I would have to ask this question. If some stranger comes up to you and asks for a few hundred thousand dollar loan. Your first concern should be on his likelihood or ability to repay the loan.
Second concern would be his collateral. What’s the house really worth? They say market prices are always right (at least for that moment). But in an asset bubble, is the house really worth it’s asking price?
I have to place 90% of the blame on those who authorized the loan. They didn’t care, they were just going to resell the mortgage to someone down the line. Sweet.
Even the cowboy depended on the federal government to bilk Indians and Mexicans out of land for him to herd his cattle on. The Mexican Wars were a bailout of the slave-based agriculture. The Southern interests needed room for Westward expansion to keep pace with Northern free soilers who were living large off of the Northwest Territory and the Louisiana purchase.
ConRail, AMTRAK, etc…
ERISA LAWS: Studebaker Pension was catalyst for protections of retirement funds.
Bailouts are an effect. They are an effect of excess. Whenever one component of our “democracy” becomes too powerful, bailouts occur. Capitalism is usually the root of the need for bailouts–too much capitalism of the sort we don’t collectively like… Farms-we as a country like the idea of the independent family farm. It’s almost a mythological ideal right up there with apple pie and baseball. So when capitalism threatened to squeeze it out of existance, the govt. bailed them out. For whatever reason, we held no emotional tie to the small business in a downtown setting, because we let Wal-Mart and malls fishgut that concept… Whatever. Other times the government steps in to correct excessive greed, or recklessness.
Of course the opposite of bailouts is deregulation. We cycle between the two and are unable to maintain a happy medium. When we deregulate the capitalist spirits are released en force. Railroads, Trucking, Airlines, Brokerages, Banks, Telecom, Free Trade,…every instance the effects of deregulation is profound and extreme…every one.
We are a country of teenagers that can’t be trusted with the liquor cabinet when our parentals leave us for a while…
Again is it bad? It usually ends badly, but that seems to be the nature of the system. As Paul McCaulley of PIMCO says, as a country we cycle from $1=1 vote to 1 person=1 vote. Recognize we are cycling toward the later now. The era of $1=1 vote is on the wane. It will be back, but now we are going to experience the gradual extreme of 1person= 1 vote.
It just is that way. It’s better than having 50 governments since WWII, like Italy, or better than the violent manner that other places solve things. It can always be worse, so with that in mind, I resolve to accept our country warts and all.
1) The government actually made money on the Chrysler and the Airlines post-9/11.
2) FASB? Not sure where that comes in. IFRS will be worse; we are surrendering there faster than a French army.
3) I thought National Flood Insurance was self-supporting… but maybe I’ve missed something there.
4) GSEs haven’t lost money yet, but it is probably coming. (And in some sense, they have restrained the need for taxes in some areas.)
5) On the 1987 crash, I agree with Caroline Baum… a secret bailout could not be done, without leaving a trail.
6) They didn’t chip anything in on LTCM.
7) Anything the Fed does decreases seniorage (Bear, TAF, TSLF, etc.), until they really get inflation cooking.
8) But on the rest you are right on — you can add in anti-unemployment programs that are there for a time, and disappear. If I were brainstorming on the topic, I would look for subsidy programs that are there for a moderate time in reaction to a failure.
Farming in Southeast Washington State
What do these have in common? All places where man had no business doing significant buildout, farming, living due to extreme natural environments. How much do we all collectively pay for these “lifestyle choices” to continue to exist? LA is in a friggin’ desert. Salt crystals form on the top of soil in the Southwest because tomato farmers have to put so much crap in the soil (including water hijacked from other locales). The Salmon in the Pacific Northwest are threatened by damming of the rivers because farmers what to farm somewhere that otherwise it isn’t possible.
New Orleans-underwater? Not if, but when?
Vegas, well there simply isn’t anything there naturally but sand. These are all to some degree government bailouts of human stupidity.
Maybe these are too big to be considered bailouts, but they are something…
To add to the sports franchise comments above, please include the Salt Lake City olympics, which Mitt Romney “saved” with Federal Dollars after the organizers figured out that it wasn’t likely to be a particularly profitable enterprise. Many of the most expensive facilities built or financed with Federal Dollars are privately owned, or owned by the localities in which they are located rather than by the US taxpayer who paid for them.
I believe (but don’t have the data with me) that the same was largely true for the Atlanta Olympics.
And of course, everybody who benefits from cheap electricity thanks to federal projects paid for by everybody else. (Bonneville Power, TVA, etc.)
Maybe you are being too specific. I don’t necessarily believe the following myself, but I think it is worth discussion: The whole US post-WW II economy has basically been a bailout effort to sustain American corporate capitalism via military spending far beyond what was- and is- necessary.
In the immediate aftermath of WW II the publics’ main concern (and if I remember my history correctly politicians’ also) was that the economy would collapse into a continuation of the Depression of the 1930’s. Enter the Soviet Union and the decades-long overestimation by the CIA,DIA,NSC etc. of its military and economic strength. Hence our military-industrial complex and our series of foreign interventions; from the small (Central America, Africa) to the large (VietNam, NATO). And don’t forget our arms sales to anyone capable of drawing breath and spouting anti-communist babble. All those billions of dollars spent, for the most part needlessly, really propped up the US economy. (I know the evidence shows this type of spending actually slows long-term growth, but we are talking political economy here, not economics).
With the fall of the USSR the search for a new bogey-man began. First suspect Red China, then Osama/Saddam/Radical Islam. The hits keep on coming, the wars keep happening, the $$$ keeps flowing. Now, with the current crew in control, federal spending is not as much aimed at propping up our economy as it is looting government funds.
Sorry, error correction… we lost money on the airline bailouts, and that doesn’t even count in the cost of the PBGC…. Oh wait, there’s another bailout entity.
Does anybody here post a link showing the actual ownership of the Fed??
That’s not for us servants to know.
hint hint it is assumed J.P. Morgan is a major shareholder. And the screwing of the U.S. taxpayer continues.
Bailout? Senator Ted Stevens getting a free second-story jackup on his residence through
a backroom buddy oil contractor, working off
public profits from oil depletion allowance,
and Stevens-approved, oil-supply-destroying,
petrol-price-gouging, Perpetual War on US.
That, and Clinton’s Mexico bailout…wow!
Ahem, bureaucrat:corporate synchup:lockup
is defined as fascism, just like trying to
boot up your pre-Vista PC after downloading “Windows Protector”, sweet, sweet, fascism.
Federal budget exclusively for “Defense”?
US employment exclusively government “civil service” or “civilian contractor status”?
Democracy = Rule by the Majority. You lose!
Pols get BTB double-dip 20’s and a pension.
US R NEO-SOVIET
The total lack of transparency prevents the proper judgement of the Bear Stearns – JP Morgan case.
Was it a Bear Stearns bailout or actually a JP Morgan bailout? JP Morgan has the biggest self-interest in derivatives business and it was offered assets on discount. It could have been a veiled bailout of JP Morgan.
The FED had the power to pick up the failing IB and the prevailing IB.
Experience from European financial crisis suggests that the formally failing party is not the only failing one. The receiving parties are failing ones too but they are chosen to get subsidies from the authorities and cheap assets from the formally failing parties.
Barry — you are being very unfair to us, the luxury yacht builders and dealers of America. Unlike you, we remain bullish on America.
Barry, it sounds like you should have voted for Ron Paul. His entire platform is based upon the American traditions of individual responsibility and limited government that are encoded in the US Constitution.
good gracious Barry, how many times has it been stated ? by Galbraith, by Shaw, Chomsky, and others.
Socialism for the rich, free market discipline for the poor. The only acceptable form of socialism in the US is socialism for the rich. the poor should work harder if they have less, the rich if they have more. and on and on and on and still noone listens.
geezus, this has got to be the third time I’ve pointed this out myself. ONE DAY this must start to sink into the populace’s consciousness. Non ?
Actually that strikes me as a very right leaning way to frame the question because it ignores the ongoing, daily, routine action of the federal government whose function is to promote the interests of the business owners over that of the rest of society. Whether it be farm price supports, nuclear power exemptions from lawsuits, software maker exemptions from liability, NAFTA, and the other ‘free trade’ agreements (which send jobs overseas but increase profits for the owners, while reducing quality — anybody read tanta’s point about ‘cost reduction’ in the mortgage business?), import quotas for automobiles (without which detroit would have been out of business years ago), all the way up to the cold war and the war on anything brown that has something to do with oil, much less the routine business of destabilizing and overthrowing business unfriendly governments throughout the world, there has been an ongoing push to make the US governments policy an extension of the will of corporate america for centuries now. That it has not always been so is undoubted, that we live in a time where the government is more beholden to business interests than it ever has been is also a transparent fact, that the fact free society attempts to obfuscate.
Quite frankly the ever shifting terms of the Bear Sterns deal makes it look to this observer like the FED isn’t just intervening for the benefit of capital markets, but has now become a tool to be used by whoever has the wherewithal in pursuit of private wealth enhancing strategies.
It is more than extravagantly clear out in the fact based society that Grover Norquist’s plan to break the back of the federal government, and deliver it’s resources to the use of ‘free market’ powers that be has succeeded spectacularly.
Vaccines. The phrase “public assumption of risk” is especially appropriate!
Just once, I’d like to see CNBC actually be truthful about its real position. Queue the tape for the new CNBC creed…
“…for the rich are…”
“…the best path…”
I think the biggest form of corporate welfare-to-bailout is called “privatization.” It’s the act of taking an otherwise normally functioning public service (i.e., trash collection), assigning it to a for-profit entity (a corporation), and guaranteeing payment on the privatized service through guarantees and municipal bonds (the preferred method of distributing risk among the public).
Because so many of these privatized services are guaranteed by the public, there’s really little/no risk for a corporation.
I don’t know if I’d call it a “bailout” in the traditional sense, but to offer a business a risk-free enterprise may as well be the same thing in my book.
Here’s a great blog that tracks privatization:
So the fact that BSC was counterparty to $13 trillion (same as U.S. GDP) in derivatives alone doesn’t matter? They should have been allowed to fail, resulting in a collapse of who knows how many other institutions? This seems like a case of “spending” $30 billion to help prevent a lose of $13 trillion, or perhaps more. By the logic presented here, we should not partake in preventative healthcare as it is wasted money.
Tongue-in-cheek comment from a coworker (wish I had thought of it). Maybe the gvt. could get something back for us from the ‘bailees’. How about Chrysler throwing us a 300 to use on the weekend! Or a couple of days on the town in NY staying in a BearStearns manager’s luxury condo. Free 1st class upgrade from the airlines?
Didn’t the Feds bail out New York City from financial collapse in the early 1980’s?
“…an American cowboy: Rugged, independent, self-reliant. I picture him on a cattle drive, depending upon only his own wits, his horse, and his trusty Winchester to get by.”
There’s your problem right there; you’re confusing John Wayne movies with reality. The 19th century cowboy hardly rode alone. Without government support the RR’s and telegraph would never have been built, the Native-Americans wouldn’t have been under armed guard on reservations, and law wouldn’t have been established and enforced. We need to get past this bullshit view of the 19th century of a time when men were men and the guvmint stayed away. Was the federal government smaller than today? Of course. Did it play no role in the development of the west? It made development of the west possible. No guvmint role, no lone cowboy.
Martin Wolf’s column in the FT last November, “Why banking remains an accident waiting to happen”, was an excellent examination of the conflicting interests of stability versus moral hazard and the reasonable government response:
Howcum Alexander Hamilton and the
Federalist’s national canal program and national banks didn’t get thrown into this mix? Most of the “interventions” by government enumerated in the article did produce some public benefit.
Balance would acknowledge federal intervention differs in merit, and subject each intervention to cost/benefit analysis. Public investment like in the case of the interstate highway system focused and promoted decades of private investment and created a national market for many goods and industries. Bailouts should be evaluated by the efficiency achieved in returning the financial system to normal ranges of functioning and the minimizing of residual government interference with market forces and deleterious side effects.
Bailouts are designed to correct private excess while preserving economic functioning. While it may be desirable to punish the parties responsible for creating the conditions, the cost to the economy at large of doing so may be prohibitive.
The avoidance of panics may be a competitive necessity for central banks in a global marketplace moving toward increasing parity among competitors.
Bailout of Vaccine Companies:
“Congress created the National Vaccine Injury Compensation Program in 1988 after widespread lawsuits against manufacturers and health-care providers stemming from reports of side-effects of a version of the diphtheria-tetanus-pertussis vaccine used in the 1980s.
With companies getting out of the vaccine business for liability reasons, Congress established the program and a trust fund to serve as a no-fault alternative for resolving certain vaccine injury claims.
The average injury compensation to an individual in vaccine court has been about $1 million. In fiscal year 2007, more than $91 million was awarded to people harmed by vaccines.”
These are the last paragraphs of a story found in the
The Atlanta Journal-Constitution March 6, 2008
Ga. girl helps link autism to childhood vaccines”
The decision took place in a VACCINE COURT.
I think it’s acceptable for the government to intervene in a crisis situation, and even to use taxpayer money to avert a situation if it poses an imminent danger of causing disproportionate damage to the economy. (Of course, there is a judgment call involved in deciding when that level of imminent danger has been reached.) However, I think that any market participants who are deemed “too big to fail” or “too entangled to fail” must accept a higher level of regulation in exchange for this protection.
Regulation should be designed to minimize the probability that government intervention will be required in the future, by reducing the amount of risk that these companies can take. This will tend to reduce profits in good years (profits which go disproportionately to insiders), but with the benefit of reducing the expected cost to taxpayers in bad years. This will also improve the functioning of the market, by better aligning the returns in these industries with the actual amount of risk that participants accept – ie., to reflect the fact that risks are lower than in other industries, due to the implicit government guarantee. This will allow capital to be allocated to various industries in proportion to their true risk/return profiles, and will discourage capital from being disproportionately allocated to an industry that benefits from enhanced government protection at the expense of taxpayers.
United Fruit and Guatemala”
US interests (notably gamb1ing) in Cuba c.1959
The War Hawks and the war of 1812
Operation Ajax and 1953 Iran.
I could go on, but the point is that there are often private commercial profits at stake in the use of military force (the risks and costs of which are socialized).
I’m not suggesting the US is alone in this, or even that it’s any worse than any other country. Only that this is the ultimate “bailout”.
Hurricane insurance? Or flood insurance?
Not exactly bailouts, at least until the big mother of all storms hits, but subsidies after the fact. While the benefits may go to individuals, there is definitely a moral hazard present.
Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980.
This allowed them to force membership on all banks who were leaving (bail out Fed), monetize foreign debt (bail out for shareholders whom happened to hold some bad loans, much like thye are doing today with dodgy mortgage backed securities), and eliminate state usury laws (gift for member banks).
Every crisis that is due to the Feds fraud or incompetence seems to lead to the Fed getting more power and extending their hegemony over our money. Unless serious discussion of changing the system takes place, the cycle will continue until a Financial Armageddon.
Interesting paper here
Private profits? Not the last time I looked at my tax bill they weren’t.
If they are going to bail out banks, investment firms, hedge funds, and every individual who are in foreclosure, they better bail out everyone. If they don’t, I’m going to walk away from my house and pay some real estate lawyer to make sure banks can not come after me.
Quite a discussion. I only want to know what the CEO compensation will be for these guys when all is said and done.