Let's Stop The Bailouts, Already

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This story was written by CNET's Declan McCullagh.

It started with Wall Street. Then it was Detroit. Now the list of bailout supplicants queuing for government handouts includes farmers, motorhome makers, home builders, governors, the city of Gary, Indiana, and even some newspapers.

Trust me, that's only the beginning.

When we look back at 2008 a few years from now, the most fateful political development may not be the actual congressional vote for a $700 billion bailout. Instead, it may be the cultural shift that allowed that vote to happen.

As recently as September, the Republicans adopted a platform that said: "We do not support government bailouts of private institutions." The same month, then-candidate Barack Obama said it would be "wholly unreasonable" to bail out Wall Street without meaningful oversight.

But thanks to prodding from the Bailout Party -- whose leaders include George W. Bush, Nancy Pelosi, Hank Paulson, and Barney Frank -- a quiescent Congress gave us just that.

Washington, of course, suffers from no shortage of lobbyists hoping to navigate the political process for financial gain. But until last fall, both major parties generally agreed that bailouts for failing companies should be limited and rare. The Treasury's emergency loan guarantee to Lockheed Corporation in 1971 was only $250 million.

Any semblance of frugality seems to be vanishing from Washington culture. Obama wants a so-called stimulus of $775 billion, while Bush's support for bailout upon bailout has stymied Republican opposition. Most Americans oppose handouts; most politicians love them.

Meanwhile, the bailout's cost has ballooned to $8.5 trillion, not counting the $5.2 trillion in Fannie and Freddie guarantees. (To be sure, taxpayers will recover part of that $13.7 trillion, a figure larger than the combined totals of every war this country has ever fought.)

Other prospective bailout petitioners:

  • Recreational vehicles deserve taxpayer handouts, according to some members of Congress. Reps. Mark Souder (R-IN) and Joe Donnelly (D-IN) wrote a letter last month to the Treasury Department saying a sales decline and layoffs qualify the industry for a bailout. It's "a vital manufacturing base that provides good jobs for hard-working Hoosiers and is essential to our local financial stability," Souder said.

  • Presidents of dozens of state universities took out an advertisement in the New York Times saying: "The current economic crisis poses a major challenge. Thirty-one of fifty states are underfunded for their 2009 budgets." If you guessed that they want a hefty "federal infusion of capital," you're right.

  • Property developers are elbowing their way to the front of the queue. A letter to the Treasury Department said that "there is insufficient systemic capacity to refinance expiring, performing commercial real-estate loans... For many borrowers, (credit) simply is not available." Never mind that bank lending is close to a record high.

  • The U.S. steel industry wants a federal "buy American" rule. That kind of protectionism worked well during the Great Depression.

  • State governments are vying for handouts too. Five Democratic governors, pointing to their swelling budget deficits, want taxpayer cash. California assembly speaker Karen Bass, a Democrat, isn't far behind.

    Then there are the even sillier ideas. Even if you believe that AIG, Wells Fargo, Merrill Lynch, and so on truly were too big to fail, who can argue with a straight face that Connecticut taxpayers must bail out two failing local newspapers? Or that dairy farmers in Dane County, Wisc. are crucial to the economy? How about San Jose, Calif. or Gary, Indiana?

    Handing out bailouts to failed enterprises does little but ensure a shrinking number of well-managed ones and a growing number of failures. It rewards managers and business owners who acted irresponsibly at the expense of the careful and prudent. The principle of self-reliance becomes forgotten.

    In my first column in October, I wrote: "Members of Congress will have a strong incentive to demand preferential treatment for borrowers in their home districts or among politically-favored constituencies." We now know that the House of Representative members who supported a Detroit bailout received 65 percent more auto industry cash than those who didn't. We also know that bailout recipients were big political donors.

    This process is toxic to our political system. But unless real opposition to the Bailout Party develops, expect much more of the same.

    Declan McCullagh is the chief political correspondent for CNET. He previously was Wired's Washington bureau chief and a reporter for Time.com and Time magazine in Washington, D.C. He has taught journalism, public policy, and First Amendment law. He is an occasional programmer, avid analog and digital photographer, and lives in the San Francisco Bay area. His e-mail address is declan.mccullagh@cnet.com

    By Declan McCullagh
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      Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.

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