The Triangle

Issue date: 9/26/08 Section: Ed-Op

Media Credit: MCT Campus Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke, Securities and Exchange Commission Chairman Chris Cox and James Lockhart, III Director of the Federal Housing Finance Agency, testify in Washington Sept. 23 before the Senate Banking Committee.

The Federal Reserve announced Sept. 16 the bailout of insurance giant AIG. The rescue - in the form of a loan - is an act unprecedented in the history of the Federal Reserve. The government now, in effect, possesses a controlling interest in a gigantic private organization. This makes AIG, in a very real sense, a public entity.
Now, only days after this staggering announcement, the government has announced a plan to bailout not only AIG, but any company sitting on bad debt. The plan - with a sticker price of $700 billion, but potential for the loss of far, far more - would give the Treasury broad powers to purchase bad debt, taking it off the hands of beleaguered banks and giving them a second chance at life.
While the bailout may be a relief for consumers, the reaction it was met with on Wall Street is far more interesting. Wall Street applauded, stocks soared, and lobbyist groups have been actively trying to extend the powers given to the Treasury under the plan. The rabid capitalists we all know and love embraced a move that reeks of socialism. This, after decades of lobbying for a "free hand" and complaining about too much regulation.
The bailout may not be so surprising if considered in the light of our last economic disaster. Certainly not since the Great Depression has our economy looked so grim. That crisis too was brought on by a lack of regulation, among other factors. Banks failed, industries collapsed, and people starved in the streets.
The New Deal marked (though perhaps did not single-handedly bring about) the end of that sad period of our nation's history. Regulation was heaped upon more regulation, and a dizzying array of acronyms was unleashed upon poverty and unemployment. This was the closest the nation has come to socialism, helping us recover and promising to prevent such an event from ever returning.
Of course, between then and now, lobbyists and politicians have slowly eroded the protections that brought us back to economic stability. In times of plenty, Wall Street has pursued profits at the exclusion of all else, tearing down legislation where it got in the way. I hope it comes as no surprise that the hens have come home to roost. Quarter loss after quarter loss, crisis after crisis, failure after failure, the financial industry is stuck in a downward spiral.

Continued...

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