I’ve been saying for weeks, in various conversations, that one reason the “crisis in confidence” has transformed fear into anxiety, is the Fed’s feckless attempts to “cure the economy”. The initial bailout plan stalled as cooler heads insisted on accountability and a clear plan of action, but the tide of uncertainty washed it ashore in some vague $750 billion bailout.
The stated intention was to buy toxic mortgage securities to relieve the liquidity crisis. Many of us were dubious in the ensuing days and weeks because the markets did not react favorably to the bailout. In addition to the history of failed government programs, my skepticism was fueled by the shortsighted decision to let Lehman fall, the fact that AIG burned through its $85 billion in a few weeks and needed $40 billion more and the surprise, at least to many, of the overnight fall of Washington Mutual.
During this period, Secretary Paulson doubted his own plan and was already planning to invest some of the bailout money directly into banks as he realized that the toxic security purchase plan would move too slowly. Of course, he didn’t tell Congress while they were deliberating the purchase of securities with its bailout money, but Paulson believed the direct investment would get the banks to lend.
Oops. Others are now chronicling this hapless journey, as Joe Nocera has done in his NY Times column today. Moreover, he reports that the banks seem to have no intention of lending that money, using it to buy other banks or to use it as a “backstop” to provide a soft landing in a tough recession, according to one conversation that Joe overheard (and wasn’t supposed to). Also, no surprise again, others are already lining up to share in the bailout fund, including the struggling automakers and insurance companies. Other names are certain to emerge as they ignite their own lobbying efforts.
Is it any wonder we don’t have much confidence that the so-called “federal bailout” may end up as another typical government boondoggle?