The Gentlemen's Bailout

The Federal Reserve's announcement of an open-ended bail-out for Wall Street's endangered financial firms and banks opens an ominous new chapter in what might be called "market socialism with American characteristics." If Washington tries to do something for "losers" who are ordinary citizens, financial titans complain about violating free-market principles. When the titans themselves are going down, they rush to their patrons at the central bank and demand extraordinary relief. Government must save the big money, we are told, for the overall good of the economy. Thus, the financial system's reckless losses--approaching $1 trillion but probably far more--are being "socialized," dumped on the public, the very people victimized by its snares and falsified valuations.

Put aside the obvious hypocrisy and greed. This nation is on the brink of a historic catastrophe. It requires emergency responses from the federal government on a scale not seen since the Great Depression and the New Deal, the subject of this special issue. Yet the rescue party is composed of the same people who co-wrote this disaster. They are, first, the financiers who indulged their own appetites for extreme wealth and enlarged a financial system of esoteric fakery that inflated prices and profits. Second, the close collaborators were the Federal Reserve and other authorities who blessed this dangerous concoction and declined to enforce prudential standards.