Why couldn't the federal government let Bear Sterns fail? Why does President Bush offer "homeowner assistance" to people who can't pay back money that banks never should have lent them in the first place? Why does the president propose expanding the power of the Federal Reserve to enable it to infuse failing banks with cash? The free market works when it rewards success and punishes failure. The federal government, even when run by Republicans, seeks to skim from the rewards and lessen the punishments. When people know that the results of bad business are a bailout, then bad business is the result. This is what's known as "moral hazard." As Bloomberg notes, "So-called moral hazard is the notion that bailouts encourage financial companies to take risk because they assume the government will always come to the rescue." It does, which is why so many financial institutions have behaved so irresponsibly. The federal government's solution to all this, perversely, is further subsidy of failure. They never learn.

Couldn't agree more. Uncle Sam seems determined to make sure this recession/depression lasts as long as possibly by steadfastly refusing, through continued economic intervention, to allow the malinvestments to liquify. Malinvestments, we should note, that it itself caused, in the form of continued monetary pumping.

I wrote:

"Currently, corporate welfare is at $60 Billion and rising. Where our economy was once based on business doing business, it now appears to be based on government doing business and intervention and restrictions have brought many private businesses to their knees forcing the same government that imposed those hurdles to come in to rescue them".

GM, Ford, Wall Street, bad lenders and dumb borrowers and now social services for failing banks?

How beholding will these private entities be after being bailed out by the taxpayer? Is government getting into the 'private business' business meaning that these businesses will eventually be socialized?

Its the live large today attitude. You know the type, buy big house, big cars, big boats, and if things get tuff claim bankruptcy.

I agree with that. From our government to private (for now) businesses to Joe Blow on the street; few live within their means and/or are fiscally responsible.

The regime effects the character of those who live under it. Big, undisciplined government will yield people who live large and are undisciplined.

"Malinvestments, we should note, that it itself caused, in the form of continued monetary pumping.
"

Ben, you're starting to remind me of me when I was your age.

I'm not sure if thats a compliment or you are expressing your opinion that I am naive?

I suppose it's a compliment. You're no more naive than I was.

And what am I naive about?

Yes, the federal government rightfully deserves huge criticism for this.

But larger questions come to mind: When will people give up on the myth that meritocratic capitalism exists in the US? And when will people give up on the simplistic line, "business is good," and its corollary, "government is bad." The fact is, the two are intimately and seemingly irrevocably bound up together, and if you want to be consistent, and simplistic, just say, "they both are bad."

Obviously, just about everything the federal government touches turns to you know what. And to a large extent the culture of "corporate welfare" that it fosters is a part of that problem.

The fact is, however, that business on its own harbors all sorts of liars, cheats, and just plain dumbasses who run their companies into the ground but walk away with huge pay packages. Execs in so many sectors--autos, airlines, and financials are timely--are pros at this. It's an easy argument that their ineptitude is proven (see failed or failing companies) and that their compensation is wildly disproportionate (which only supports a judgment of their corruption and/or ineptitude).

Yes, the culture of "corporate welfare" that gives these folks a governmental system to game also supports their m.o. of mismanagement, but that is not the whole story. Almost by definition, the market is totally out of whack with respect to executive compensation, which points to larger problems--having to do with information/evaluation of talent and corporate governance structures--in the "free market."

(P.S. Anyone who thinks that talent-evaluation is not botched in the market has simply led a charmed life, in the clouds perhaps.)