5 Absurdities of the Bailouts

Pretty good stuff, from US News and World Report


1.Bailing out profitable firms. In normal times, nobody would think of giving taxpayer funds to companies able to survive on their own. Yet that's exactly what we're doing. Goldman Sachs, Exhibit A, is sitting on $10 billion in government loans even though it earned $1.8 billion in the first quarter. Wells Fargo, which has gotten $25 billion, expects its first-quarter profits to come in at about $3 billion. Several other major bailout recipients, including JP Morgan Chase, will probably be profitable for much or all of 2009.

2.Loans that the borrowers aren't allowed to repay. The government wants all of its bailout money back - just not yet. The feds are worried that banks seeking a PR boost will pay back their bailout funds before they're ready - then suffer more losses down the road and end up back at the government teat. The plan now is to first complete the bank "stress tests" to determine how healthy the biggest bailout recipients are, and only then consider payback plans. Even then, the government may refuse to allow early paybacks, because the banks that don't step forward will look weak by dissociation.

3. Everybody wins. So far, the financial bailout has played out like a soccer game for six-year-olds: Everybody wins and nobody's feelings get hurt. Enough of that. It's time for leaders to emerge, and if weaker competitors falter or fail as a result, the good news is that the nation's financial safety net is a lot stronger than it was last fall. Besides, at some point, the risks of propping up weak companies exceed the risks of letting them fail.

4. Congress, Inc. Those Merrill Lynch and AIG bonuses may have been disconcerting, but Congress's reaction was even more alarming. Provisions to enact tax laws aimed at a single corporation - AIG - reveal the dangers of angry legislating. Others proposals to limit pay, select managers, and set interest rates at banks receiving bailout money threaten to establish a two-tier banking system in which privately run banks respond to market forces, while government-controlled banks respond to political forces. That's hopeless. The market produces excesses, but so does Congress. And the market has better self-correcting mechanism

5. The $1 CEO. Ed Liddy, an outsider who took over as the chief executive of AIG last fall, has one of the hardest jobs in America. He has to dismantle a dying giant of a company, preserving the vital organs while excising an entanglement of financial malignancies that could still threaten the global economy. For this, he's getting paid $1, while also being treated to perks like a Congressional whipping every now and then. The CEOs of Fannie Mae and Citigroup agreed to similar salaries, as if sacrificing a paycheck atones for the sins of their predecessors