What a Colossal Waste of Your Money

So far, the Wall Street bailout has cost somewhere in the neighborhood of $3.9 trillion.To put that in perspective, the United States' entire Gross Domestic Product was $13.8 trillion in 2007. That's more than 28% of the country's annual output, spent on the so-called rescue of some of the biggest failures the financial market has ever seen.

And what have we gotten for all that money?

• Extraordinary damage to the corporate bond market, thanks to the overturning of the absolute priority rules that gave bond investors incentive to loan money to businesses.
• The further deterioration of the housing and mortgage markets, thanks to the impeding of the deterrence and price floor finding powers of foreclosures.
• An extreme disincentive regarding saving, investing, and taking out prudent mortgages.
• The economic damage caused by people preparing for higher taxes, faster inflation, and even bigger failures to follow the bailout.
• The hobbling of interbank lending thanks to overly aggressive central bank interventions.
• The socialization of risks and privatization of rewards that come with such bailouts.
• The waste, fraud, and abuse of mandatory government interventions in healthy companies.

Is that really help?
Perhaps the worst part of the whole fiasco is the fact that nearly all the bailout dollars have gone to reward failure, at the cost of punishing success. Through higher future taxes, higher borrowing costs, and likely faster inflation, those of us who work hard, play by the rules, and live within our means will be paying for this mess for generations.

On top of those long-term costs has been a significant amount of near-term pain, too. Stock markets around the globe have been tanking. Unemployment is up. People and institutions with money don't want to lend it, for fear either they or the recipients of their cash will stumble and be "helped" out of existence like so many before them have been. The real economy is grinding to a halt, and there's reason to believe that it's largely because of -- rather than in spite of -- the unintended consequences of all these government interventions.

There has been a tremendous amount of money already invested in these disastrous schemes, yet they've done little more than make things worse. As long as the strategy is to tear apart contracts, punish those who succeed, and rob from investors to give to politically connected companies, the market and economy may never recover.

How to encourage investment
At this point, we're already in deep trouble. The financial system -- along with capitalism's very underpinnings -- has been badly damaged by the very people charged to protect it. If there is any legitimate chance at a recovery, it will happen only after policy makers realize the very real limits of their fiats and command-and-control style interventions.

Things will improve only after:

• The destructive government policies that are destroying market confidence get reversed,
• Safeguards get put in place to prevent further such idiocy, and
• The incentive to profit -- rather than fail -- again gets rewarded.

Only then will confidence be restored, lending markets be reopened, and capital holders once again be willing to take the risks necessary to stimulate sustainable economic growth.

If Washington would like an idea for a shot in the arm to help encourage that investment, it should look no further than its own "American Jobs Creation Act of 2004." By lowering the taxes on repatriated foreign earnings, somewhere in the neighborhood of $300 billion of offshore profits were brought back to the United States. Some of the companies that brought that cash back were:

You know these companies as profitable ones that employ a whole bunch of people and know how to make and sell products and services that real people want and need. Why not give them a chance to restart the engine of economic growth, rather than the dismal failures currently being subsidized?

There is still hope!
Our country can once again pull itself up by its bootstraps and emerge stronger. Step one is restoring the discipline of the threat of failure and creditor priority in the bankruptcy process. Step two is changing the focus to once again reward success rather than the current practice of rewarding failure. Step three -- the recovery of the economy and market -- will then take care of itself.

It's a much cheaper solution than the trillions we've already thrown away. It's also far more likely to work.