Don't Save Wall Street's Whales!
In the Wash Post, Allan Sloan of Fortune has a sharp piece about double standards when it comes to bailing out big economic players vs. smaller borrowers:
Wall Street loves to talk about letting financial markets weed out the weak. But when the Street itself gets in trouble, it sticks out its little tin cup, asking for help. And gets it.
The meltdown in the subprime mortgage market is a classic example of the way the small fry gets devoured, but the whales of Wall Street get rescued. Here's the deal: People with crummy credit who took out mortgages are being allowed to fail in record numbers. The mortgage companies that made those loans are being allowed to fail.
The Street itself? It's bailout city. Even before the Fed made a symbolic half-point cut in the discount rate, it and other central banks from Switzerland to Singapore were trying to rescue the Street by injecting hundreds of billions of dollars into the financial markets and announcing they would put up more, if needed.
Hello? If you believe in markets, which I do, this rescue is especially galling, because Wall Street enabled this mess in the first place. How so? By happily sucking up hundreds of billions of dollars' worth of suspect mortgages from marginal U.S. borrowers—and begging mortgage makers to create more of them….
But the world's central banks aren't letting the big guys fail. Think of it as the Escape of the Enablers. The reason this is happening, of course, is the same reason that the Fed orchestrated a bailout of the infamous Long-Term Capital Management hedge fund a decade ago—and about 20 years ago didn't close some of the nation's biggest banks, even though they were effectively insolvent because unrealized losses had wiped out their capital.
Read the whole thing here.