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Five Things You Need to Know: Last Chance to Stop the Bailouts


This is it. The opportunity to do the right thing.


Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:

When I lived in Kentucky every now and then I would go to a place called the Last Chance Saloon. The place could be a little tough on strangers, but after a couple of hours there were no such things as strangers.

I thought of the Last Chance Saloon today as American Express (AXP) became the latest company to "convert" to a TARP-eligible commercial bank, just so it can gain emergency access to government funds. And then, moments later, I read in the Wall Street Journal that of the first half of the $700 billion bailout allotment, only $60 billion remains.

Distressed companies from General Motors (GM) -- ostensibly an auto manufacturer -- to General Growth Properties (GGP) -- a shopping-mall REIT -- are desperately trying to elbow their way up to the trough. Even worse, the companies that received the initial bailout money, AIG (AIG) and Fannie Mae (FNM) and Freddie Mac (FRE), are finding they underestimated how much money they need. They're back for more.

The Journal says that this rush to belly up to the bar now makes it likely Treasury Secretary Hank Paulson will be forced to go back before Congress and ask for still more bailout money. And so here it is. This is it. Congress has a chance. The last chance to do the right thing and stop the bailouts.

What if Congress stops the bailout, even going so far as to patriotically refuse to authorize the second half of the original $350 billion? We will see a terrifying and dramatic drop in financial markets. Stocks will likely plunge 30% or so from present levels. There will be bankruptcies and layoffs. Times will be tough. Very tough.

What if Congress approves still more bailout money? That money will be quickly absorbed by a financial system staggering under the weight of unprecedented levels of debt. We will see a continued decline in the velocity of money and business activity. Stocks may slowly fall 30% or so from present levels. There will be bankruptcies and layoffs. Times will be tough. Very tough.

Then what's the difference?

The difference is that without more bailouts, within a decade - give or take a few years - we will emerge as a healthier, stronger economy with companies that operate as if they are deeply responsible for their own business decisions. With continued bailouts we will emerge from a lost decade with an economy and society crippled by the cost of bailng out businesses that operated with irresponsibility and a near total disregard for not just taxpayers but for their very own shareholders.

This is it. The last chance to do the right thing.

But you and I already know how this story ends. The right thing will not be done. There will be more bailouts. And then more bailouts. Meanwhile, even as we continue writing checks to failed businesses, once-healthy businesses are facing doom, victimized by zombie companies absorbing dollars that, if freely spent, would be rightly theirs.

USA Today this morning ran a piece on Crestor, an expensive drug that when given to those with normal cholesterol resulted in 54% fewer heart attacks and 48% fewer strokes. Unfortunately, using Crestor in healthy people to save lives would add $10 billion to the nation's healthcare bill.

But so what? See, that money is already earmarked for banks and for those who would pretend to be banks. The great irony in this nationlaization of the finance industry is that chief among those now feeeding from the public trough are the very same pigs that were first in line to denounce other "anti-free market" industrial nationalization platforms that have been proposed over the past two decades; industries such as health care.

Make no mistake, it is not that I think healthcare should be nationalized. I do not. But if I had to choose between paying taxes to subsidize Wall Street failures and paying taxes to subsidize healthcare policies, I would choose healthcare.

Many decades from now, when looking back, this generation of politicians and "financeers" will forever be remembered as those who, when faced with the choice, opted for nationalized finance over healthcare. Congratulations. We've got one; we can't afford both.

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