Hanging the Little Guy Out to Dry
WHEN YOU are too big to fail, you are bailed out.
When you are too small to save, you are down and out on the street.
Some aspects of the Wall Street crisis are tough to understand. But one economic principle is pretty clear.
When a really big company goes bust, the little guy pays with his home or job. But those CEOs and money managers who boldly march their corporate empires into bankruptcy just get paid millions and millions of dollars more.
From Washington, inconsistency is the policy order of the day.
President Bush lurched briefly into the spotlight, turning from a repressed memory into a poor excuse for a Harvard MBA.
In just the past week, the federal government let Lehman Brothers Holdings Inc. fail; applauded a merger between Merrill Lynch & Co. and Bank of America; then turned around less than 48 hours later to bail out insurance giant American International Group Inc.
Before that, bailouts rescued Bear Stearns, Fannie Mae, and Freddie Mac. Each was deemed too big too fail.
But no one wants to help taxpayers who are losing homes and jobs. In the grand scheme of American capitalism, they are overreaching specks, too stupid, presumptuous, and inconsequential to spare.
In February, Bush signed into law a $170 billion stimulus package that did nothing for those hit hardest by the home mortgage collapse.
And Congress, controlled by Democrats, went along. Even if they didn't have the votes to override a presidential veto, the people's representatives could have spoken up for the people. Instead, they assisted in the charade. House Speaker Nancy Pelosi stood smilingly behind the president as he signed what he called "a booster shot for our economy." Ouch.
Last week's mantra from Washington was to bail out the big financial institutions and then regulate. Let's see if this time the Democrats pay more than lip service to relief for homeowners faced with foreclosure. Until then, this mother of all rescue missions is just another way of saying, "Send them to their room for a time-out with a threat of future punishment."
Republican presidential candidate John McCain is turning into the king of shotgun marriages, from his partnership with Sarah Palin to his sudden embrace of government regulation. After a career in Washington devoted to the pursuit of deregulation, greed is no longer good for McCain's political aspirations. So now, he rails against rapacious Wall Street and tells voters, "We have got to fix it." Given his track record, it's doubtful McCain will.
Meanwhile, in a back to the future moment, Democrat Barack Obama sequestered himself in Florida with the Clinton economic team, minus Bill and Hillary. According to an Obama press release, the presidential candidate discussed plans to stabilize the financial system with a group that included two former Clinton Treasury secretaries - Robert Rubin and Larry Summers; and two former Clinton National Economic advisers - Laura Tyson and Gene Sperling.
It's time for Obama to show some mettle. Stop talking about "regulation," and start backing change people can really believe in - a serious plan to bail out the little guy, as serious as the one offered up for corporate big shots.
The country's conservative moralists shake their finger at low-income home buyers who dared to make a grab for a humble piece of the American dream. When the dream turns nightmarish, the foreclosed-upon are held personally accountable for their bad debt.
But there's no personal accountability for those who actually understood the fine print behind those shaky loans, because they wrote it. No one tells them to hand back their bonuses. If they are eventually forced out, they walk out with huge paychecks.
By week's end, some editorials were calling for executive compensation reform. But who really believes there is an end in sight to golden parachutes for corporate America's golden boys and girls?
The total in taxpayer money that will be pledged to rescue the economy - as much as $1 trillion - is stunning. So is the general philosophy that supports it.
For the most part, those cut loose tried to play by the rules.
Those who were saved broke them.
© 2008 Boston Globe