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SOWELL: A political ‘solution’: Part II

- The Washington Times - Friday, September 26, 2008

COMMENTARY:

Estimates of how much money a government program will cost are notoriously unreliable. Estimates of the cost of the current bailout in the financial markets run into the hundreds of billions of dollars, and some say it may reach or exceed a trillion.

Many people have trouble even forming some notion of what such numbers as billion and trillion mean. One way to get some idea of the magnitude of a trillion is to ask: How long ago was a trillion seconds?

A trillion seconds ago, no one on this planet could read and write. Neither the Roman Empire nor the ancient Chinese dynasties had yet come into existence. None of the founders of the world's great religions today had yet been born.

That's what a trillion means. Put a dollar sign in front of it and that's what the current bailout may cost.

Will that money be spent wisely? It is theoretically possible. But don't bet the rent money on it or you could end up among the homeless.

Whenever there is a lot of the taxpayers' money around, politicians are going to find ways to spend it that will increase their chances of getting re-elected by giving goodies to voters.

The longer it takes Congress to pass the bailout bill, the more of those goodies will find their way into the legislation. Speed is important, not just to protect the financial markets but to protect the taxpayers from having more of their hard-earned money squandered by politicians.

Regardless of what Sen. Barack Obama or Sen. John McCain may say they will do as president, after a trillion dollars has been taken off the top there will be a lot less in the federal treasury for them to do anything with.

Already Sen. Christopher Dodd, Connecticut Democrat, is talking about extending the bailout from the financial firms to homeowners facing mortgage foreclosures — as if the point of all this is to play Santa Claus. The huge federal debts we already have are the ghosts of Christmas past.

Financial institutions are not being bailed out as a favor to them or their stockholders. In fact, stockholders have come out worse off after some bailouts.

The real point is to avoid a major contraction of credit that could cause major downturns in output and employment, ruining millions of people, far beyond the financial institutions involved. If it was just a question of the financial institutions themselves, they could be left to sink or swim. But it is not.

We do not need a replay of the Great Depression of the 1930s, when the failure of thousands of banks meant a drastic reduction of credit — and therefore a drastic reduction of the demand needed to keep production going and millions of people employed.

But bailing out people who made ill-advised mortgages makes no more sense that bailing out people who lost their life savings in Las Vegas casinos. It makes political sense only to people like Mr. Dodd, who are among the reasons for the financial mess in the first place.

People usually stop making ill-advised decisions when forced to face the consequences of those decisions, not when politicians come to their rescue and make the taxpayers pay for decisions the taxpayers had nothing to do with.

The Wall Street Journal, which has for years been sounding the alarm about the riskiness of Fannie Mae and Freddie Mac, recently cited Mr. Dodd along with New York Sen. Charles Schumer and Massachusetts Rep. Barney Frank, also Democrats, among those on Capitol Hill who have been "shilling" for these financial institutions, downplaying the risks and opposing attempts to restrict their free-wheeling in the mortgage market.

As recently as July of this year, Mr. Dodd declared Fannie Mae and Freddie "fundamentally strong" and said there is no need for "panicking" about them. But now that the chickens have come home to roost, Mr. Dodd wants to be sure to get some goodies from the rescue legislation to pass out to people likely to vote for him.

Don't make any bets on how this situation will turn out - except that we can predict politicians will blame the "greed"of other people. You can bet the rent money on that.

Thomas Sowell is a nationally syndicated columnist.