The free market's not always the fair and honest market
Market forces are great. Until they're not.
After nearly three decades of conservatives insisting that government has no business meddling in the private sector, the Bush administration on Friday announced a sweeping plan to spend hundreds of billions of taxpayer dollars bailing out financial institutions that bet wrong on the mortgage market.
The move followed separate bailouts of insurance behemoth American International Group, mortgage giants Fannie Mae and Freddie Mac, and investment bank Bear Stearns Cos., along with the bankruptcy of Lehman Bros. Holdings Inc.
I'm not saying the government was wrong to ride to the rescue of most of these guys. Even though I wrote recently that the bailouts had to stop, it's now clear this mess was going to get a whole lot messier without some dramatic move to restore confidence.
What cheeses me, though, is that we could have done something about this before it turned into a crisis. This whole sorry episode proves how badly we need government regulators to crack down on increasingly reckless businesses.
"Market fundamentalists believe that markets always work," said Robert Reich, a professor of public policy at UC Berkeley and Labor secretary under President Clinton. "They believe markets don't need anyone to assure fair and honest dealing.
"Those market fundamentalists have been proved wrong time and time again."
Nothing illustrates that better than the meltdown on Wall Street last week -- a frightening reminder of how easily companies can get in over their heads when Uncle Sam is looking elsewhere, and how expensive it can be for taxpayers to clean up the mess.
"There's been a massive market failure here," said Kathleen Hagerty, a finance professor at Northwestern University's Kellogg School of Management.
She said a government bailout of distressed companies was understandable under the circumstances. But the upshot needs to be tighter regulation of the marketplace.
"If the government is going to be the one left holding the bag, then it needs to be able to tell people what to do," Hagerty said.
It's been quite some time since the government has either wanted to or had the wherewithal to practice tough love on the private sector. The push for deregulation that began with Ronald Reagan reached its zenith under the current President Bush.
