I'm sure you enjoyed Fool Seth Jayson's satirical commentary about using part of the $700 billion bailout kitty to invest in monorails and band uniforms as much as I did. As Seth noted, "We can all use a laugh on days like today."
Unfortunately, this article isn't a joke, although the punch-line might be about as hard to believe.
San Jose, a bustling city in the heart of Silicon Valley, hinted that it would seek 2%, or $14 billion of the bailout, to cover its own financial headaches. For comparison's sake, $14 billion is more than four times San Jose's 2009 budget. The 2% figure allegedly came from the fact that San Jose contributes more than 2% of the nation's GDP. A handful of other cities are expected to ask the Treasury for a little help, too.
And why not? Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), and American Express (NYSE:AXP) all converted to "bank holding companies" and, voila, became eligible for easier access to taxpayer-funded assistance. General Motors (NYSE:GM) and Ford (NYSE:F) may very well get a piece of the action, too. Why not throw in a few struggling municipalities as well?
To be sure, San Jose isn't actually trying to become a bank holding company. It's simply suggesting it be included on the list of bailout recipients. But that's actually where the logic seems to go astray.
The fact that so many (including myself) use the word "bailout" next to the $700 billion plan is pretty unfortunate. If you ask AIG (NYSE:AIG), Freddie Mac, or Fannie Mae shareholders whether they feel their investments have been saved, the answer would be unanimous: "Of course not."
Even if you ask companies like Bank of America (NYSE:BAC) or State Street -- both recipients of Treasury investments -- you're not going to find a group of high-fiving shareholders. They've been hammered in the past year, and rightfully so. Contrary to popular belief, there's never been an intent to reward companies for their (small-f) foolish ways. It's been an attempt to halt a "run on the bank" in the financial sector that threatened an even bigger disaster than we're in.
That said, the problem with letting cities, counties, states, and even the auto industry in on the $700 billion pie is that it shifts the meaning of the funds from staving off a systemic financial collapse to picking up the tab for years of financial mismanagement.
Don't get me wrong, I'm not saying Wall Street isn't guilty of financial mismanagement. Heck, it practically invented the field. But as soon as you let the auto industry, San Jose, or any other group with a financial migraine in on the action, you're going to have to answer a tough question: Where do you draw the line? The truth is you'll be hard pressed to find one corner of the economy that isn't in some sort of financial dilemma right now. If everyone who's in over their head is entitled to a check from Uncle Sam, $700 billion isn't going to make a dent.
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