The Federal Reserve took an unprecedented, but necessary action, to forestall a global financial crisis that has its roots in failed conservative ideology.
The Wall Street firm, Bear Stearns, was purchased by J.P. Morgan at a bargain basement price. Even at a bargain price J.P. Morgan had legitimate concerns about assuming Bear Stearns' mortgage assets, leading the Federal Reserve to agree to take on, via the U.S. taxpayer, about $30 billion of those investments. Many economists believe a much, much larger bailout is coming.
The root of our financial crisis is the naive belief that market forces are always good and regulation is always bad. In a political climate of little regulation, created by the Bush administration, Wall Street investment firms began to function as banks, but with high risk portfolios. Ideology also led the Bush administration to ignore increasingly clear danger signals until it grew into a crisis.
It would be tempting to simply let the firms that foolishly invested their shareholders funds fail. But there is too great a risk of a larger financial panic that would wreak havoc on the economy. My parents' vivid memories of the 1930s depression make it clear to me what we would risk should we allow the chips to simply fall as they may.
There are other large investment firms that will require taxpayer funds to prevent a meltdown. The eventual cost will be very big, probably greater than the U.S. savings and loan crisis which cost taxpayers $450 billion, adjusted for today's dollars. Where will the money come from? The U.S. treasury is hardly flush these days. The cost of the Iraq war has been $522 billion, with another $70 billion already allocated for 2008.
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It is ironic to remember that the Republican Party that gave us George W. Bush positions itself as the party of fiscal conservatives with the business background to manage our nation's treasure.
