“[T]he Federal Reserve and Treasury… refused to offer the same taxpayer guarantees to Lehman paper that it had for Bear Sterns last March. That was enough to cause Barclays and other potential Lehman acquirers to walk away.”—“Wall Street Reckoning,” Wall Street Journal, September 15th, 2008.
Another one bites the dust. Nobody would buy Lehman Brothers because the government refused to backstop it. That should tell the American people something very sobering: with more than $50 billion in bad loans, the current failure and bankruptcy of Lehman was unavoidable—and the government had no role to play in trying to prevent its demise.
The Fed and Treasury, to their credit, have finally refused to give into the bailout fever that they caused back in March when they bailed out Bear Sterns to the tune of $30 billion.
All told, this year the taxpayer has been put on the hook for roughly $680 billion (and counting) to bail out the financial system and “prevent” a recession: $150 billion for the economic “stimulus” package, $300 billion for the Foreclosure “Prevention” Act–Fannie/Freddie bailout, part 1, $30 billion for Bear Sterns, and another $200 billion (at least) to nationalize Fannie Mae and Freddie Mac.
Thus far, everything Big Government has attempted to do was at least in part predicated on the irrational rationale of “preventing” the housing market crash from continuing. The manipulator apparently believed the market cannot even absorb home prices returning to normal, affordable levels after the exuberant housing bubble popped. All this new “liquidity” is intended to stop that from happening. But why?
The truth is: they have attempted to prevent a failure that was probably inevitable.
The government must allow the market to finally correct itself. No more economic “stimulus”. No more bailouts. Let the chips fall where they may. Until government gets out of the way, economic recovery will not be anywhere closer.
It has already spit out nearly $1 trillion in taxpayer funds. And yet somehow the markets are still taking a major hit. Perhaps if it had gotten out of the way back in March, allowed the housing market to bottom out naturally, and fought inflation, the economy would not be mired in the mess it finds itself in today.
Of course, the automatic inclination for Big Government politicians in Washington will be to offer up yet another Big Bailout. Perhaps another $100+ billion economic “stimulus” package that only causes inflation. Or another $300+ billion to forestall foreclosure for another few months.
Instead, and in contrast, the bailout fever notwithstanding, failures like Lehman should be allowed to happen. Finally, once and for all: Let them fail. Along with the fever.