Government Bailouts: Genius or Calamity?

Will 2008 go down as the year of the end of the American Empire? Or a blip in the 100+ year of American economy supremacy?

Let’s recall what has occurred so far this year:

Bear Stearns bailout: billions of dollars

Freddie and Fannie bailout: no one knows how much this will cost yet- but billions

Car companies bailout: $25 billion (also asking for $25 billion more)

Are Airlines next?

Newspapers?

Real estate companies?

You have to wonder how far the government is going to go.

I concur with most experts that Freddie and Fannie were so crucial to the housing market that they could NOT be allowed to fail. But the car companies? We have long ago passed the time where “whither GM, whither the nation”. (Because if we haven’t- the nation is in real, real trouble.)

But this is an election year and Michigan is a prized state. So both political parties are backing the huge bailout of these companies. Even as they continue to get their butts kicked by Toyota, Nissan, Honda and BMW.

Want to know how well a company works when it is owned by the government?

Look at Amtrak.

Enough said.

Will the Fannie/Freddie takeover halt the housing bust?

Supposedly the takeover of Freddie and Fannie is going to halt the housing price declines and stop foreclosures. How will it do that again?

Housing is declining because the prices are too high compared to American incomes. Without all-interest loans or 100% financing, there is no way someone making $70,000 can buy a $700,000 home (which was common in places like New York and California.)

You can’t prop up a bubble or stop it from busting. Yet- this Administration believes these latest actions will do so. And no one knows how much this will cost. Paulson was on CNBC this morning saying he has no clue what the cost will be.

Fabulous.

But I thought bailing out Bear Stearns was going to stop the credit crisis and the slide in the financial markets?

These are interesting times. These are historic moves. Question is- how will history judge them?