20 September 2008

Hard Truths About the Bailout

The fifth major federal bailout this year — after Bear Stearns, Fannie Mae, Freddie Mac and the American International Group — is now in the works. Taxpayers have every right to be alarmed and angry. The latest plan is not necessarily a bad one, and officials had to move quickly to prevent credit markets from seizing up.

But make no mistake, this crisis could have been avoided if regulators had enforced rules and officials had dared to question risky lending and other dubious practices.

If done right, this bailout could succeed where the others have failed and remove the threat of a systemwide financial collapse. But the upfront cost will be enormous. So will the risk of losses in the long run — on top of the risks already incurred.

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