Bailout Nation
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)
- FASB
- 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?
Monday, March 24, 2008 | 06:30 PM | Permalink
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RTC
Posted by: cynicalgirl | Mar 24, 2008 6:34:09 PM
Lockheed 1971
Posted by: Stinkin Desert Guy | Mar 24, 2008 6:41:02 PM
what's the big deal? we're all better off for it.
Posted by: bailoutnation | Mar 24, 2008 7:00:50 PM
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.
Posted by: DonKei | Mar 24, 2008 7:01:40 PM
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.
Posted by: njdoc | Mar 24, 2008 7:03:56 PM
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.
Posted by: Andrew | Mar 24, 2008 7:11:06 PM
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.
Posted by: gonzo | Mar 24, 2008 7:12:41 PM
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.
Posted by: gonzo | Mar 24, 2008 7:13:53 PM
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%?
Posted by: dave54 | Mar 24, 2008 7:14:35 PM
Silver Thursday?
Posted by: Frank J | Mar 24, 2008 7:14:42 PM
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~!
Posted by: Steve B | Mar 24, 2008 7:14:45 PM
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.
Posted by: Ken H. | Mar 24, 2008 7:17:05 PM
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.
Posted by: wheres wells? | Mar 24, 2008 7:17:09 PM
continental bank
Posted by: brent | Mar 24, 2008 7:17:59 PM
I think we have an answer to Taleb's Black Swan?
The Federal Government (aka the White Swan)
Posted by: mitch | Mar 24, 2008 7:22:52 PM
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).
Posted by: joe | Mar 24, 2008 7:24:10 PM
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.
Posted by: | Mar 24, 2008 7:26:55 PM
whine, so where is *my* bailout ? I could dig a few billions in my wallet.
Posted by: sysin3 | Mar 24, 2008 7:29:23 PM
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%?
Posted by: dave54 | Mar 24, 2008 7:32:50 PM
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.
Posted by: Billy Shears | Mar 24, 2008 7:33:33 PM
The Iraq War 2003 - 2030
Posted by: ottnott | Mar 24, 2008 7:34:57 PM
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.
Posted by: Whammer | Mar 24, 2008 7:36:44 PM
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.
Posted by: Kevin Wolf | Mar 24, 2008 7:43:04 PM
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.
Posted by: donna | Mar 24, 2008 7:44:48 PM
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.
Posted by: patient renter | Mar 24, 2008 7:48:56 PM
