Freedom Line Blog

In his best Alice in Wonderland attempt to facilitate the Obama Agenda, Ezra Klein of The Washington Post explains the bailout provision of the Senate’s proposed financial regulation bill and determines that “it isn’t a bailout.”

Klein begins with the rationalization that the bill’s $50 bailout provision “isn’t a lot of money” compared to the $700 billion TARP bill and the House’s $150 resolution fund.  Gee, now that you put it that way, we suppose it’s OK?  Rather than characterize Klein’s logic, we’ll simply accept his own description of the bailout process:

The FDIC takes over the banks.  The $50 billion fund is used to keep the lights on while all this happens.”

In other words, Mr. Kelein, the $50 billion fund subsidizes operations and pays the bills during bureaucratic takeover of an enterprise that should have instead faced the stark prospect of certain failure for its own decisions.  In other words, it continues operations while federal regulators take their time in determining their preferred political outcome.  Protecting reckless enterprises against the consequences of immediate and certain failure will only encourage the very moral hazard that incentivized such recklessness in the first place.  That’s precisely the problem with Washington’s bailout culture.