The Big Rip-Off

December 22, 2008 11:02 a.m.

Everybody, it seems, wants a bailout. And observers are left demanding bailouts for some industries (cars) and bewailing them for others (commercial construction, hedge funds). But as I watch this unfold I feel increasingly concerned that the people controlling the money are using the complexity of the situation and the public’s difficulty in understanding it to use public money to shield very wealthy institutions and individuals from the inherent risks of their chosen line of work.

There’s a basic distinction that should be guiding all the public expenditure we’re doing in the finance sector. There’s no reason to use public money to compensate people who’ve lost a lot of money on bad investments, no interest in bailing out big commercial or investment banks that made lousy investments. (I’m particularly suspicious of the commercial building folks who say they want the Treasury IV as well.) What I think we all recognize though, at least in principle, is that there’s a strong public interest in preventing major disruptions in the financial sector that could hobble the rest of the economy.

But I keep hearing more and more examples that sound a lot more like trying to socialize the losses of the major investment houses and hedge funds and their owners than trying to achieve any reasonable public purpose. Because it’s very difficult for most people to distinguish in practice between structural intervention (as I’ve defined it above) and unjustified bailouts for people who made bad investments.

It’s a slow news week. And this is going to require a lot of digging. But this is something that we’re going to be digging into in a big way. So for all of our readers who have insight into this question, please let us know where we should be looking.

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