Happy Talk on the Bailout

Steven Pearlstein usually makes sense in his columns for The Washington Post, which is why I'm inclined to believe that he has been kidnapped and an Al Qaeda operative wrote today's column [1] "A Bailout: For Everyone." The column makes no sense.

As I've written way too many times, the Fed's actions are keeping banks from having to write down large losses and quite likely go into bankruptcy. The result is that the bank executives, whose inept management pushed them into bankruptcy, get to keep their jobs and their salaries, which run into the tens of millions a year. Stockholders will also have more time to unload their stock before the day of reckoning, and the banks themselves may be able to unload some of their junk if they find enough suckers. With luck, they may even be able to survive the collapse of the housing bubble.

Does this bail out the rest of us? Why should any of us who are not top management at Citigroup, or major shareholders, care if it goes into receivership like Northern Rock did in England? The bank's operations will still continue. Those who have deposits there will still be able to get their money. The only difference is that there will be new management, the stockholders will have lost their money, and the bank would more quickly come clean on its bad debts.

Does the bailout do anything for the tens of millions of homeowners who have seen their life savings disappear because house prices collapsed -- in spite of the fact that all the experts said house prices never fall? How about the families who are now tapping their retirement accounts [2]in a desperate effort to prevent foreclosure, is the Fed bailing them out?

The bubble was driven by incredible incompetence by those calling the shots both at the Fed and other regulatory institutions and in the financial sector. We should clean house as quickly as possible. This bailout is not in the public interest.

Crossposted at The American Prospect.