Saving Wall Street - Failing Main Street

Saving Wall Street; Failing Main Street

The headlines just seem to get gloomier with each passing week of 2008. Housing prices keep falling, gas prices rise, and consumer confidence is at a five-year low.

But where are the tax-payers' efforts being directed? Not at the average consumer or at the home-owners no longer able to keep up with adjustable-rate mortgages. Instead millions of dollars of government credit has been extended to keep banks lending money to one another and to bail out investment firms like Bear Stearns.

The extension of credit makes sense in an environment where banks are suddenly distrustful of one another and how much more bad debt will surface as the full extent of the sub-prime mortgage crisis becomes known. One can even make the argument that arranging the shot-gun marriage of Bear Stearns and JP Morgan Chase can be justified if it helped to contain a sudden run, not just on Bear Stearns but other firms with similar investments.

However, since it is not merely the U.S. Government, but ultimately U.S. taxpayers, namely you and me, who are financing these transactions, it also makes sense to ask what are the risks and benefits for us? UC-Berkeley public policy professor and commentator, Robert Reich, points out that when the British government bailed out one its largest failing banks it took shares of stock so that British taxpayer would reap the gains if the shares became sufficiently valuable. In the case of the JP Morgan-Bear Stearns deal, U.S. taxpayers are essentially providing a kind of corporate welfare, in which they lose if the JP Morgan acquisition proves a bust, but if the acquisition pays off, JP Morgan shareholders win and U.S. taxpayers still lose. Why voters tolerate this kind of lose-lose situation over and over again as the government steps in to handle various financial bubbles from the savings and loan scandal to the current credit crisis is a mystery.

Capitalism is supposed to be a zero-sum game, but in the current U.S. political and economic system, it's a rigged game where individuals can lose but corporations and corporate bankers always seem to come out ahead. Conservative politicians have always argued that what is good for business is good for the average American, but recent economic developments increasingly call that into question, and the increasing burden of business bailouts on the American taxpayer may finally bring these issues to the foreground for debate in the upcoming election.