A Tale of Two Bailouts
By Chris Nienstedt, JGSM '10
Christopher Nienstedt
Issue date: 12/12/08 Section: Perspectives
I used to consider myself a free market purist. As the debate raged about the $700 billion bailout of the financial system, I wondered whether belief in the free market had been quickly and completely replaced by the philosophy of swift, massive government intervention in the economy. However, as we now consider another bailout, $25 billion for the domestic automotive industry, the "free market supporters" in Congress are back in full force saying that badly managed firms should be allowed to fail. The prevailing opinion among our government appears to be that the financial bailout was a necessary evil needed to avert a widespread economic disaster, while the proposed automotive bailout is business as usual. However, all predictions indicate that the effects of the failure of the automotive industry could easily be considered an economic disaster as well. Considering that we've already compromised our free market principles to save the economy, why is this situation not worth investing less than 4% of the financial bailout dollars to avert? I believe that there is one simple answer to that question: politics as usual.
Let's remember what happened with the passage of the financial bailout. The majority of the American people opposed it, and in the initial round of voting the House of Representatives rejected it. One might have thought that Congress was actually responding to the will of its constituents, but in the second round of voting several "sweeteners" (i.e. earmarks for special interest groups) were added to the bill and the House approved it. Throughout all of this, the White House, the Treasury department, and business leaders on Wall Street were urging immediate passage of the bill because they were quite positive that economic disaster was imminent unless we relieved banks of their "troubled assets." There was a great deal of talk of helping Wall Street in order to save "Main Street." Now, only two months later, Henry Paulson says that the money should really be used in other ways, including providing additional liquidity for consumer debt. Wait a minute - wasn't excess consumer debt one of the major causes of this fiasco? Apparently those troubled assets were not the problem after all. It seems our government is not sure exactly how to use the $700 billion that needed to be approved immediately. One thing is for certain though: financial institutions across the country, even relatively healthy ones, are scrambling to get their hands on the money.
Let's remember what happened with the passage of the financial bailout. The majority of the American people opposed it, and in the initial round of voting the House of Representatives rejected it. One might have thought that Congress was actually responding to the will of its constituents, but in the second round of voting several "sweeteners" (i.e. earmarks for special interest groups) were added to the bill and the House approved it. Throughout all of this, the White House, the Treasury department, and business leaders on Wall Street were urging immediate passage of the bill because they were quite positive that economic disaster was imminent unless we relieved banks of their "troubled assets." There was a great deal of talk of helping Wall Street in order to save "Main Street." Now, only two months later, Henry Paulson says that the money should really be used in other ways, including providing additional liquidity for consumer debt. Wait a minute - wasn't excess consumer debt one of the major causes of this fiasco? Apparently those troubled assets were not the problem after all. It seems our government is not sure exactly how to use the $700 billion that needed to be approved immediately. One thing is for certain though: financial institutions across the country, even relatively healthy ones, are scrambling to get their hands on the money.
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