Welfare Redefined: Bush, Obama, and the New "Bailout" Culture

Posted: April 10, 2009  Author: Dr. Moss

There was a time, not so long ago, when those of us on the right railed about "welfare," the costs and damaging impact it had on society and culture, and how, rather than helping those recipients of government largess, it often hurt them, providing as it did, perverse incentives for dysfunctional behavior.  Welfare, we said, was corrosive to the fundamental values of American society, to personal responsibility and discipline, of accountability and hard work.  And, indeed, I believe, we were correct in this analysis, as massive transfers of wealth since Great Society have done nothing to alleviate poverty but rather deepened it along with establishing negative patterns of behavior that have become intergenerational.  It also added permanent and costly federal programs that have proven impossible to dial back.

And, yet, how quaint that discussion now seems in light of the government misadventure that has occurred over the last year in response to the mortgage crisis, brought on itself in large measure by its own misguided policies.  Asking those who created the crisis to now right it seems a questionable strategy.  Yet, in retrospect, the discussion over welfare that animated the debate between left and right previously, seems antiquated now in light of the radical transformation of the whole concept of "welfare" that has occurred in the last year, the redefining of government assistance to include not just the ranks of the poor and indigent as before but banks, insurance companies, whole industries, states, and municipalities.  Major players and former "masters of the universe" from corporate America now shamelessly line up for handouts.  The operative word, of course, is no longer welfare but "bailout," and bailout indeed is what the government has been doing (with businesses brazenly colluding), lurching from one disordered spending bacchanal to the next in the hope of finding a role for itself and assuring the nation of its relevance.  In the meantime, it has only guaranteed the prolongation of the crisis and its deepening while permanently altering for the worse its relationship with the private sector.  It has also piled on massive debt for future taxpayers to absorb. 

But it is worth reviewing, the awful flailing and stumbling and blundering of our government, its spasms and twitches of inconsistent activity, its confused and neurotic careening from one bailout and stimulus package to another, adding yet new government duties and responsibilities to an already bloated canon of programs, replete with new entitlements, record deficits, a shrinking, intimidated private sector, and a distorted marketplace holding on to its money instead of busily picking over the remains of bankrupted companies or swooping in for unprecedented bargains, fortifying themselves with the assets of failed firms, and doing what entrepreneurs do in times of economic turmoil, which is to prepare the way for the next upturn; indeed, they forestall decisions because of uncertainty over further government actions: all bode badly for future prospects for ending the recession quickly and promoting long term economic growth.  

And through all of this, there has been painfully little explanation of the roots of the financial crisis, the central role of the government through its sponsorship of Fanny Mae and Freddie Mac, the Community Reinvestment Act, its undermining of traditional lending practices, its affordable housing initiatives, its quotas for faulty loans to those unable to pay, the availability of cheap money from the Fed, and even Sarbanes-Oxley.  And the shameless influence peddling of the big mortgage firms (and particularly Fannie and Freddie) through generous campaign contributions to many of our leaders in Congress.  No, in fact, all of the policies, programs, and practices that brought us to the calamity remain in place, even bolstered, and with new ones added.  None has been exposed or explained and none have been eliminated.  But, of course, our political class, in particular liberal Democrats, and more specifically Chris Dodd and Barney Frank, are knee deep in involvement in the whole affordable housing debacle and are unlikely to come clean.  They have, as always, managed to escape unscathed and intact.

But a listing of the parade of travesties that have passed for enlightened government policy is useful if only to gauge the depth of the ignorance, the unending bailouts and stimulus packages that have sailed forth under the banner of both parties at overwhelming taxpayer expense, the return of tired and failed prescriptions for curing economic disease, the return, in other words of Keynesian economics, of government spending, of roaring deficits, of a direct and deliberate insertion of government into the private realms of business enterprise; it is disheartening, indeed, to see the wholesale abandonment of primary principles that have guided our nation, brought us the unprecedented growth and prosperity Americans have so greatly benefited from, the belief in the individual and his God-given talents and rights to pursue his dreams, of limited government, and the free market.  The past year has been nothing if not a frontal assault on capitalism itself, the engine that has done so much to advance the human good and made the US the envy of the world.  And the betrayal has been perpetrated by both political parties, a full scale attack on freedom then by the political class, our lifetime-tenured career politicians.

Here then follows a listing of the follies, a spectacular display of political conceit and self regard, of elected elites run amok, of government intrusion and tomfoolery of the highest order.  With no signs of it ending soon.

2/13/08: The Economic Stimulus Act of 2008.  That memorable first "stimulus" package signed by Bush that was supposed to keep the nation from falling into a recession.  How whimsical those early days seem today, before the depths of the calamity were properly gauged, the full fury and befuddlement of Washington unleashed, and the Dow still magically hovering at around 12,000.  At $168 billion, a mere trifling by more recent standards.  Basically, it amounted to meaningless rebate checks for individuals earning less than $75,000 and married couples less than $150,000, of $600 per person or less.  This was supposed to somehow lift the economy and prevent a recession; it, of course, did nothing of the sort and succeeded only setting the stage for yet more ill advised ad-hoc actions by the federal government.  How Bush could have signed on for this silliness is a mystery, other than that he is, as I have long stated, a liberal and believes fervently in government action, no different than any Democrat.  A little known feature of the bill was that the jumbo loan limit was raised for mortgages purchased by Fannie and Freddie from $417,000 to $729,750.  Imagine that.  More money for questionable borrowers at a cheaper rate.  Even at that late stage, the government oblivious to the looming subprime crisis just lurking around the corner, promoting yet more faulty loans to be purchased, bundled, and sold around the world by F&F, the so called "toxic assets," those legendary "mortgaged backed securities" (MBS's) and "collateralized debt obligations" (CDO's) that have brought the world economy to its knees.  The negligence of our elected leaders is truly stunning.

3/26/08: Ah, yes, Bear Stearns, the first of the bailouts, and how trivial this now seems in light of all that has come since, yet at the time, a big deal.  In this initial foray into bailout world, the poorly defined phrase, "systemic risk" was first heard, the same phrase that would come to justify all manner of federal intervention through the year.  The Fed, in effect, put taxpayers at risk for Bear's mortgage backed assets to smooth the way for its purchase by J.P.Morgan Chase, the first time the Federal government had rescued a Wall Street investment bank since the 1930s.  James Freeman of the Wall Street Journal wonders whether this initial bailout led to the many others that followed.  When it became apparent that the Fed was ready to step in to prevent firms from defaulting based on their own poor choices, did teetering firms subsequently avoid painful decisions that could have prevented the collapse of, say, AIG or Lehman Brothers, and others.  It is here also where another common adjective achieved totemic status right along that of "systemic risk," that being the word "fragile" as in "fragile" economic or financial conditions.  It is as poorly defined and understood as "systemic risk," yet equally powerful in mesmerizing politicians and compelling them to engage in spending paroxysms the likes of which we have not seen since FDR, or, perhaps, ever.

July 12, 2008:  The FDIC takes over IndyMac.  Tight credit, falling home prices, and increased foreclosures.  It is the largest regulated thrift to fail and second largest financial institution to close in US history.  The estimated cost of takeover: between $4 billion and $8 billion.

7/26/08: This is the so called "Hope for Homeowners" program or "housing rescue" bill that permanently increased the limit on the size of loans Fannie and Freddie could buy.  The FHA (Federal Housing Authority) would now insure F&F loans up to $625,000 (previous maximum $$362,000), gave Fannie and Freddie a new line of credit from the Treasury through 2009, and put taxpayers at risk for $300 billion in new FHA loans while relaxing loaning standards including down payments of as low as 3% and lenient requirements on borrower income.  It also provides $3.9 billion in grants to "hard hit" communities for local governments to buy and repair foreclosed properties.  It offers $15 billion in housing tax breaks and credits up to $7500 for first-time home buyers.  And $180 million for pre-foreclosure counseling and legal services for distressed borrowers.  The generosity of the government with our money is overwhelming.  Doesn't this all sound eerilie familiar?  Wasn't Fannie and Freddie at the center of the subprime crisis?  Indeed, they were.  And, so, with impeccable logic, the government gave them yet more money to buy up more risky loans, using reduced loaning standards and for much larger mortgages.  And, now, on top of all this, the FHA is on board with a new program to the tune of $300 billion.  Moral hazard anyone?  Perhaps, we should all default on our mortgages?

9/7/09: The US Treasury bails out Fannie and Freddie to the tune of $200 billion, placing the GSEs (Government Sponsored Enterprises) into conservatorship under the Federal Housing Finance Agency (FHFA).  The US government bought $1 billion in each company in the form of senior preferred stock and an ownership stake of 79.9%.  It could be the largest federal bailout ever.  The Treasury also planned to buy mortgage backed securities held by F&F.  F&F, of course, were the favored pets of liberal Democrats in Congress, and at the center of the mortgage crisis.  They have $six trillion in liabilities and half of all the mortgages in the country.  It would have been better to have carved them up and sold off their assets on the open market (divestment) to rid the nation of their blight.  The GSEs enjoyed an entirely corrupting arrangement with a business model of, basically, private profit/public risk that was assured of failing (backed as they are by the government, they had low capital requirements, cheap and easy access to money, powerful influence in Washington, and no limits to their risk-taking and over leveraging, leading predictably to their downfall), while placing trillions of taxpayer dollars at risk, as, indeed, they had already done.

9/17/08:  The next big bailout.  The US Treasury purchases AIG for $85 billion and owns 79.9% of the company.  This came days after the government let Lehman Brothers go under, deciding suddenly that AIG was "too big to fail." (And why wasn't Lehman Brothers?  No explanation and yet another indication of the incoherence and confusion of government policy in dealing with the whole mess.)  Another one of those buzz phrases, right up their with "systemic risk."  President Bush and Treasury Secretary Henry Paulson basically had a panic attack.  They feared the "Hoover moment" in which they would go down as the one's who caused the next Great Depression by inaction, much as Hoover has been blamed by liberal historians for causing the first.  The truth is that Hoover was not inactive and that, indeed, was the problem.  He was an activist President who believed in government intervention and everything he did ensured the recession would become a depression.  He raised taxes, spent and borrowed extravagantly (at the expense of the private sector) and signed "Smoot-Hawley," protectionist legislation that plunged the world into a trade/tariff war that brought on the many believe actually brought on the global Depression.  Hoover basically was a big government liberal who has been inappropriately cast as a laissez-faire conservative to serve a political agenda (discredit capitalism and endorse big government).  Nothing, however, could have been further from the truth.  (This process was accelerated, of course, by his successor, FDR, who saw Hoover and raised him, and raised him, and raised him... The analogy with Bush-Obama is truly astonishing).  But, it would have been too much to expect Bush to have known this.  His crisis/panic pronouncements at the time cost McCain/Palin (who were surging in the polls) the election. 

The taxpayer assistance has since grown to $170 billion, and the government owns nearly 80 percent of the company. 

(AIG, by the way, was heavily involved with selling "credit default swaps," which is insurance against defaults on assets linked to mortgage securities.  Failure at AIG would have forced financial firms globally to have taken losses and write-downs.)

10/3/08:  The "Troubled Asset Relief Program" or TARP at a cost of $750 billion was intended to buy up "toxic assets," the shaky mortgage backed securities that banks could not unload or even value, which was forcing them to "write down" their assets (Sarbanes-Oxley, or "mark to market" accounting), making it impossible to lend.  By targeting the toxic assets, the theory went, the banks could then begin lending again, ending the so called "credit seizure" (another buzz phrase) that was going on at the time.  None of this, of course, occurred.  The bill was pork laden (tax exemptions for toy arrows?), used to purchase stock in non bank financial firms and financed securities backed by consumer debt (car and student loans, credit cards).  There was no planning for this, the waste was enormous, and it accomplished nothing, yet another example of the oafish incompetence of the federal government.  This, of course, was heavily promoted by Bush/Paulson and the Democrats were only too happy to oblige a Republican President stooge looking to spend hundreds of billions of taxpayer money by passing the $750 billion TARP spending bill, right up their alley.  It is, of course, wonderful to have a Republican President serving as Democrat front man for every disastrous new spending/bailout/stimulus package coming down the pike.  The Dems can then claim "bipartisanship" for the new misbegotten spending and the outrageous deficits.  Some House Republicans offered token resistance at first, but quickly folded, second time around, the panic and hysteria and fear of the "Hoover Moment" enveloping everyone.  Principles be damned.  Such a sham and such a shame.  What an opportunity McCain lost by not voting against it.  He could have, in one bold move, distinguished himself from both Bush and Obama.  But knowing little or nothing about economics, he went along with the herd.  A brave man usually, not afraid to take political risks as he showed by picking Palin, he failed here, and it cost him - and us.

11/24/08: US agrees to rescue Citigroup by injecting $20 billion in fresh capital and providing  guarantees of $306 billion against toxic assets.  Citigroup is one of the world's best-known banking brands, with more than 200 million customer accounts in 106 countries. Its plunging stock price threatened to spook customers and imperil the bank.  Another one of those "too big to fail" firms (yet another buzz phrase, this one ubiquitous, and, perhaps, the equal to "systemic risk") that should have been allowed to fail.

12/19/08: Another taxpayer funded bailout, this time for the embattled automakers, Chrysler and GM, with a $17.4 billion loan package to stave off bankruptcy (using TARP funds).  Ford was not part of the bailout.  The two companies had until March 31, 2009 to come up with a restructuring plan or prepare for an orderly Chapter 11 bankruptcy.  The story of our once great car makers coming to Washington with their hands out to face the likes of Barney Frank and Chris Dodd and other liberals who have done so much to bring down these two former juggernauts is tragic indeed.  If not for Congress requiring them to make little fuel efficient cars that Americans don't want to buy and selling them at a loss (the "two fleet" albatross) and the prohibitive UAW labor contracts, our automakers would do just fine.  Bankruptcy might have achieved that.  Tossing more taxpayer money at them will not; they will not make the painful decisions needed to compete and survive.  Or to put it another way, the UAW and the government will not let them.  The UAW, of course, is a big Democrat constituent, as are unions in general, and so Congress will not let them go under.  A bankruptcy judge would.  A judge would also get them out of the two fleet morass that requires them to make glorified green, hybrid, electric lawnmowers that Americans don't want to buy to satisfy their ecoMarxist/global warming/flat earth supporters.   A final note on this: the money for the loan came from TARP, a perfect example of the incoherence of that budget busting boondoggle.  Wasn't that supposed to buy up toxic assets?  Thus far, not a single mortgage backed security has been bought by TARP.  Yet Bush threatened damnation and hellfire if TARP wasn't passed, just in time, as I have already mentioned, to destroy McCain's chances in 2008.

December 29, 2oo8: Treasury Department injects $5 billion stake into GMAC as part of a plan to transform the lender, formerly the financial arm of General Motors, into a bank holding company. The New York Times reported that GMAC wanted to become a bank mainly so it could be considered a "financial institution" and be eligible for funding from the $700 billion Troubled Asset Relief Program (TARP).  As Reason Online tells it: GMAC received TARP money so it could be eligible for TARP money.  TARP is one big slush fund for government bureaucrats to do with what they choose.  Regardless of the original mandate from Congress.  GMAC, by the way, is the financial arm of GM, and makes loans to car dealers and buyers, has been losing billions.  And you thought TARP was to supposed to buy up those toxic assets stemming from faulty homeowner loans?

1/16/09: Bank of America (the US's largest bank) recieves $20 billion in US govt aid and $118 billion in guarantees against bad assets incurred when it bought Merrill Lynch.  In return, the US treasury takes a stake in the bank.  Just hours after the aid package was announced, Merrill Lynch posted a fourth-quarter 2008 loss of $15.31bn. Bank of America had been seen as one of the strongest US banks, at least until its decision to take over Merrill.

2/17/09:  Obama's first major initiative, a $789 billion monster "stimulus" bill, the "American Recovery and Reinvestment Act," backed by no GOP House Representatives and only three, yet crucial, Republican Senators (Snowe, Collins, Specter), the largest spending bill in the nation's history (just surpassing Bush's monster TARP bill).  Yet, according to the CBO, only $26 billion or just over 3% will be spent in the first year.  Another $110 billion (13%) will be spent the next year, for a total of 16% over the next two years.  So 84% of the so called "stimulus" (spending) bill will be spent after the economy has already dug itself out of the recession.  So why bother?  Well, to pay back constituencies and buy more votes, and to enlarge the government to so dominant a position that it can never be challenged, and to increase the debt so much that taxes will have to be raised.  Liberals love high taxes, the higher the better, because less money means less freedom and less capacity for people to function independent of the government.  Money will go to 120 different federal programs with no certainty that a single job will be created.  It is properly referred to as a spending bill for there is no stimulus to speak of.  The non partisan Congressional Budget Office said that the stimulus bill will hurt the economy more in the long run than if nothing was done.

Some of the items include: $400 million for global warming research, $6.2 billion for the Weatherization Assistance Program, $400 million for hybrid cards for state and local governments (let them buy their own hybrids if the want to), $fifty million for the National Endowment for the Arts, $2.4 billion for carbon capture demonstration projects, $850 million for Amtrak, $15 billion for Pell Grants, $4.2 billion for "neighborhood stabilization activities," $650 million for digital-TV coupons, $90 million to educate "vulnerable populations," $150 million for "producers of livestock, honeybees, and farm-raised fish," $750 million for farm subsidies, $90 billion for aid to states for medicaid, #301 billion for "tax cuts" for non taxpayers, $17.5 billion for health information technology,$53 billion aid for states, $26 billion food and farming, $1 billion for prevention and wellness fund on STD, $50 million for identifying sites for carbon storage, $1.5 billion for homelessness prevention, $2 billion for "advanced batteries," $100 million for day care meals and snackes, $2 billion for neighborhood stabilization, $30 million to save the endangered salt marsh harvest mouse, etc. 

Basically, an extravagant, pork barrel, spending bill, but unprecedented in its size and scope.  Nothing to do with job creation, but buying votes, paying back constituencies, expanding government.  All huddled together under the banner of "stimulus," the new operative word (and another buzz phrase).  In a fit of Keynesian indulgence and excess, the Congress now has a ticket to fund any favored liberal pet project or program.  More than one hundred and twenty government programs in fact.  The increased funding is said to be a one time affair, but this is pure chicanery as any observer of the government would know.  Rather, the spending increases will simply be incorporated into a higher baseline for continued spending growth.  This phenomenon is more commonly known as "earmarks" or "pork," but on a grand scale, the grandest in our nation's history, cloaked in the illusion of "stimulus."  As Obama chief of staff, Rahm Emanuel said, never waste a crisis.

The budget deficit for 2009 is already the largest in recent history.  CBO places the budget deficit at 8.9% of GDP.  With stimulus, it will approach $2 trillion or 13.5% of the GDP.  Since 1980, the budget deficit, as the WSJ shows, generally ranged between 3-4% of GDP.  Which brings us to the next boondoggle.

3/11/09: The Omnibus Appropriations Act of 2009: A monster bill of $410 billion with not a hint of the kind of moderation a prudent Congress reflecting on the current state of the economy would insist on.  No, not this Congress, or perhaps any Congress.  This budget buster increases discretionary spending by 8% and even Democrat Senator Evan Bayh decried the profligacy.

3/18/09: The Fed (Federal Reserve) announces that it will print some $1 trillion and will purchase $300 billion worth of US Treasuries.  It will also purchase another $750 billion in mortgage backed securities.  It had been $500 billion.  The Wall Street Journal worried that the move would devalue the dollar and cause inflation.  It would double the Fed's balance sheet from $1.9 trillion to almost $4 trillion or 30% of GDP.  In September 2008, it had been $900 billion or about 7% of GDP.  Could the easy, cheap credit cause another asset bubble?  The Fed was also supposed to be an independent entity, but with this move has made itself an "agent of the Treasury."  Might members of Congress or the White House now enjoy undue influence over the Fed, prodding them to provide easy money for favored constituencies (auto loans, credit card holders, a war)?  Furthermore, doesn't this only further encourage the profligate spending habits of the political class?  Who will tame them, if not the Fed?  Finally, printing money like this is a neat trick if you can get away with it.  Any other business or entity caught doing it goes to jail.

Some comments and asides:

The $750 billion TARP fund that was passed by an hysterical Congress last September and signed by a witless President Bush was supposed to unfreeze the credit market, which, we were told, were "seizing up" (another buzz phrase) by purchasing the "toxic assets" that were forcing banks to take drastic "write downs" and hence making it impossible to loan money.  The LIBOR (London Interbank Offer Rate) spread was increasing.  Drought and hail, famine and plague, floods and locusts were about to be unleashed (sounds not unlike the global warming evangelicals).  TARP was marketed as an heroic government effort that would prevent financial Armageddon.  Well the market crashed anyway.  McCain lost the election when it looked like he might pull ahead.  And, oh, by the way, $325 billion has been spent and not one toxic asset has been bought.

Get ready for TARP II or the second half of the original TARP.   This is the recent (Secretary of Treasury) Geithner Plan, referred to as the Public Private Investment Program (PPIP).  It calls on the market to assist in "price discovery" of the toxic assets (MBSs), which is good, but taxpayers will be on the hook for as much as 93% of the risk by guaranteeing up to a trillion dollars in loans to purchase the "legacy assets" that are allegedly keeping banks from loaning money.  Private investors will have to put up only 7% of the money.  Isn't this more of what we have seen already, indeed what got us into this mess?  Private profit, public risk?  The troubled banks can sell the assets on the open market already but decline to do so because they don't like the price they're being offered.  And they're busy waiting for a government bailout or loan guarantee like Geithner is offering right now.  The simple solution is to let those banks sink or swim.  Sell or fail.  If they fail, the FDIC can sell off the assets after bankruptcy as it has been doing to failed banks for decades.  And at no risk for the taxpayers.  But, if you believe in government as white knight or savior, then government must be involved, regardless of their role in bringing us here in the first place.

There have been no end to loan modification schemes put forth by the government, most recently Obama himself, 2/19/09.  Anyone with F&F mortgages will be able to refinance to lower rates by meeting certain criteria not available to new home buyers, even down as low as 31% of monthly income.  How do you do that?  Just rewrite the mortgage contract.  What a deal!  Yet, all these good intentions with taxpayer money does not yield the desired results.  Redefault rates six months after loan modifications for borrowers 30 or more days delinquent was 55%.  But, of course, it is their intentions that matter, not outcomes.  Another taxpayer boondoggle.  Moral hazard (again) anyone?

Keynesian theory on massive deficit spending during economic downturns and the so called "multiplier effect," which posits that for every $1 in deficit spending results in $1.5 dollars in economic growth is a fantasy, discredited and refuted long ago by Milton Friedman.  It is painful as well as costly to see it being rehabilitated again, and particularly so when championed by a Republican President.  The Obama White House estimates that their stimulus package would yield 3.6 million new jobs; this figure is six times too high (it will create only 600,000 jobs, or one sixth the number, instead).  That is slightly less than the "multiplier" of 1.5 and costs about $1.5 million per job.  Your tax dollars at work.  If the multiplier effect really worked and actually created $1.5 of economic activity for every $1 of deficit spending, then why not have a $10 trillion stimulus package so we could all go home and wait for the windfall revenue to steam in like manna from heaven.  The liberal imagination is an amazing thing to watch.  The $787 billion Obama "stimulus" package would have been put to better use with tax cuts.

The cost of the various bailouts and stimulus packages comes to nearly $3 trillion or just short of the entire federal budget in 2008.  In effect, we have had the equivalent of two federal budgets in one year.  And with all this expense has come what?  The stock market has lost roughly 50% of its value from its peak in 2007, and 40% coming after the first bailout for Bear Stearns.  Trillions in weath built up over the last decade lost in just a few months.  In the meantime, trillions of dollars have been added to the national debt to be paid by future generations (not currently voting).  It spells a weak recovery, inflation, higher taxes, and sky rocketing interest payments on the debt, currently near $500 billion per year and rising fast.  It will eventually crowd out the rest of the budget.  Then what will we do?

We now also have the specter of a new and expanded, souped up, all powerful federal government with no limits on its ambitions and its vision of what it can do with your money. 

We have also seen a most unfortunate transformation in our business culture and a new sense of entitlement in the country.  Now no one, not individuals or businesses, banks or insurance companies, credit card holders or homeowners, expects to suffer consequences for bad decisions, excessive risk taking, over leveraging, or just borrowing more than one can afford.  Not to be repetitious, but this is moral hazard personified, and an invitation for more of the same high risk behavior that brought us to the current financial crisis. 

The relationship between the federal government and the private sector has also been altered, perhaps for good now, as we lurch irrevocably towards a European style social democracy replete with limited or negative growth, deficits, inflation, decline and stagnation.  And so now, along with the poor and needy, we find the mighty and the powerful lining up to feed at the public trough, including GM, Chrysler, Met Life, Prudential, AIG, Citigroup, BoA, Bear-Stearns, F&F, hedge funds, states and mucipalities, not to mention homeowners, credit card holders, and students.  Basically everyone.  Socialism indeed.  Welfare redefined and transformed into a far more pervasive, costly, and insidious "bailout culture."

The reality though is that it would have been better to have done nothing.  No bailouts or so called "stimulus" packages.  The government, instead, should have explained the causes of the crisis, owned up to its own responsibility for it, divested F&F, ended the Community Reinvestment Act, and terminated all "affordable housing" initiatives, which did not produce the American dream but rather the American nightmare.  Strategies to monitor and regulate the new financial derivative instruments (CDO's, MBSs, credit default swaps, and the like) should have been developed so risk can be properly assessed; appropriate capital requirements for banks and insurance companies that invest or trade in such instruments should be enforced, and a transparent "clearing house" for such new "shadow" financial instruments and technologies created, so they can be tracked.  The current oligopoly of government approved credit rating agencies consisting of Standard and Poor's, Moody's, and Fitch (the "Nationally Recognized Statistical Rating Organizations" or NRSROs), needs to be revised as well for the obvious conflict of interest (borrowers, or those who issue securities, pay them to assess their financial instruments) and their failure to properly rate the risk of mortgage backed securities, which led to so much economic upheaval. 

But let housing prices fall.  New buyers, attracted by the low prices, will come in to buy them.  Let firms fail.  And allow the healthy ones to thrive, perhaps off the carcasses of the ones that made poor decisions (and at bargain prices).  Yes.  That is how it works.  A natural, organic (this ought to appeal to tree huggers) free market process.  Let the unemployed collect their unemployment insurance.  Allow our bankruptcy laws (Chapter 11) and courts to settle disputes and resolve obligations that individuals and businesses can no longer manage and to obtain the highest possible value from failed firms.  The FDIC can take over failed banks and divest assets as it has done since the 1930s.  Recessions are part of the business cycle, of booms and busts, of the free market.  They are a natural part of the ebb and flow of the economy, of the business cycle, of the boom-bust phenomenon; they are a kind of law of physics.  What goes up, comes down.  One can defy gravity for only so long when there is no support (or "value" in what one invests in).  The nation must simply go through the healing process as a a patient recovers from an illness, with our "leaders" endeavoring to explain the reasons for it, the government providing appropriate support (in the manner described above - and no more), but by no means, for heaven's sake, making it worse or causing further injury or prolonging the recovery, by thrashing about mindlessly with costly, confused, ad hoc federal interventions that supplant private negotiation and court proceedings, and undermine the usual corrective mechanisms. 

If nothing had been done, no "heroic" interventions by Bush and Obama and the Congress, the market would still have collapsed as it did, unemployment would have risen as it has to more than 8%, the economy would have contracted, and trillions of dollars in wealth would still have been lost.  Only we would not have added trillions in new debt and fundamentally altered for the worse the relationship between the federal government and the private sector.  We would not be on a trajectory that leads inexorably to greater deficits, hyperinflation, expansive government, higher taxes, and economic stagnation and decline; we would not be on a course for the US to default on its debt when other countries no longer buy our treasuries because the dollar has been so severely devalued.  Or because a new, more stable, reserve currency emerges from a nation with greater fiscal discipline (the yuan?). 

And then who will bail us out as we slip into second rate power status, the world's largest debtor nation and latest, greatest banana republic? 

Instead, by holding fast, maintaining fiscal discipline, cutting taxes, and reducing spending, without the arbitrary and pointless government hyperactivity, and outrageous deficit spending, the economy could have found its bottom sooner, the weak firms that deserved to fail would have failed, and the sturdy, judicious companies would have emerged stronger, feeding off the assets of bankrupted companies at bargain prices, ready to take the nation along on the next growth cycle.  It is an entirely organic process, as necessary for the economy as clearing out dead wood from a forest (to prevent destructive fires), and resolved much quicker without the distorting, corrosive influence of the federal government. 

As Amar Bhide has written, there would be "more entrepreneurs and innovators, who could capitalize on the opportunities to be found in the midst of turmoil, ...building the foundations of a prosperous future."

And there wouldn't be a "bailout culture" whereby businesses and individuals, banks and insurance companies, mortgage firms and industries now expect to be rescued by a government already extended well beyond its proper reach, which only increases the likelihood of further ill advised risk taking (moral hazard, again) and economic turmoil to come.  "Risk" is a critical element in the free market.  It forces businesses and individuals to weigh decisions carefully, consider the consequences of their actions, and to be prepared for bad outcomes.  Without "risk," there will be further economic mayhem.  

Final Note: the frenzied chaotic approach of the federal government toward the financial crisis, the embrace of failed Keynesian theories of "stimulus," of dizzying and disorienting bailouts for certain companies and not others, of government picking winners and losers, of creating an uneven playing field, of favoring firms and individuals and homeowners who made poor business and personal decisions over those who did not, of assisting firms deemed "too big to fail" over smaller firms that conducted their affairs prudently, of mangling and contorting the economy, of nationalizing banks and industries and deciding salaries and bonuses, of making business decisions in Washington and appointing car "czars," of the parade of buzz phrases ("systemic risk" being the most hypnotic) that have bewitched our political class into spending money hand over fist, the whole misguided misadventure that has thoroughly subverted the private sector, began with George Bush. 

This man single handedly destroyed the Republican reputation for fiscal discipline and sanity, shoved the nation perhaps irrevocably in the direction of a European socialist nanny state, brought the radicals into the Congress and the White House, and indirectly declared war on the free market and capitalist system, the very engine of the nation's wealth and prosperity for the last two hundred years. 

Bush-Obamaism is a debilitating continuum, and Bush's major contribution to it is a dark stain on the Republican record and a most damaging blow to the country. 

George Bush and his record must be repudiated by the GOP if it is ever to return to power.