When is the cure worse than the disease? But hey, if government intervention is good for fixing the financial crisis, then maybe more is better. Bloomberg reports:
Nov. 24 (Bloomberg) — The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.
The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis. …
Regulators hope the rescue will contain the damage and keep banks providing the credit that is the lifeblood of the U.S. economy.
Most of the spending programs are run out of the New York Fed, whose president, Timothy Geithner, is said to be President- elect Barack Obama’s choice to be Treasury Secretary. … The tally doesn’t include money to General Motors Corp., Ford Motor Co. and Chrysler LLC. Obama has said he favors financial assistance to keep them from collapse.
Never has so much potential power been put in the hands of an incoming President — Barack Obama. Even the New York Times is hinting at a reason to fear. Peter J. Solomon, the head of the Peter J. Solomon Company writes in an Op-Ed:
The pressure from cities, states and auto companies grows daily. Soon, the line will be around the block. How and where are decisions going to be made? What are the criteria? Who is going to monitor the investments? How will decisions to sell be made? …
It would be naïve to suggest that anything based in Washington will be devoid of political content; I do suggest, however, that taxpayers need protection from profligate “bailouts,” which have the potential of making “earmarks” look penny ante.
In suspending further TARP investments, Secretary Paulson and President Bush have done President-elect Obama an enormous favor. This allows the new administration to rewrite its rules. Mr. Obama would be well advised to use this time and the Democratic majorities he has in Congress to establish a new agency, separate the functions of deal-making from policy, allowing his new Treasury secretary to fashion policies that will restore long-term growth.
Government and the chattering classes have talked themselves into a frenzy where all that seems to matter is to do something. Anything, so long as they do something.