Bailout Nation Read Online Free Page A

Without a healthy steel industry, the country would’ve been hamstrung in its attempts to build ships, tanks, planes, and other tools of warfare. The munitions industry also received much of Uncle Sam’s largesse, as did the metals companies and the rubber industry. Indeed, the ramp-up to World War II saw an enormous amount of government assistance to companies that were war-related.
    Were these truly bailouts? It’s hard to call any nation’s national defense buildup in wartime a true bailout.
    After World War II, the United States entered a long period of economic expansion. The building of suburbia, the automobile industry’s enormous growth, the expansion of major cities, and the entire postwar baby boom led to salad days for corporate America. There was no further government involvement in corporate America until the rescue of Lockheed Aircraft Corporation in 1971.
    What made the Lockheed bailout so pivotal was its status as the first public bailout of a major corporation—and only that corporation. The Lockheed rescue became the blueprint for most future bailouts over the next half century.
    The rescue of Lockheed in 1971 ($250 million) led to loan guarantees for Penn Central in 1974 ($676.3 million in loan guarantees), which paved the way for the $1.5 billion rescue of Chrysler in 1980 and then Continental Illinois Bank in 1984 ($1.8 billion loss). This led to the original mother of all government insurance payouts—the savings and loan (S&L) crisis of the early 1990s (total taxpayer cost: $178.56 billion), which led to the stock market rescue of 2000, and so on. Each bailout has had negative consequences, and the repercussions have often led to the next bailout. Each negative impact seems to have the perverse effect of making future bailouts less surprising and more tolerable—and therefore more likely.
    The Federal Reserve’s attempted rescue of the credit markets in August 2007 ultimately led to the $29 billion rescue of a single firm—the investment bank Bear Stearns in March 2008. The Fed not only was rescuing Bear Stearns but, indirectly, JPMorgan Chase, the largest derivatives counterparty of Bear Stearns. More important, the Fed was also protecting its original decision to rescue the credit markets. The housing bailout package of July 2008 rationalized the interest rate policies of the early 2000s, and led indirectly to the nationalization of Fannie Mae and Freddie Mac, which not only cost $200 billion, but put more than $5.5 trillion worth of debt back on the books of the U.S. government. Then came the takeover of AIG ($173 billion and counting), the $700 billion Troubled Assets Relief Program (TARP), which featured the forced injection of $250 billion into the nation’s largest banks. November 2008 brought another $20 billion capital injection into Citigroup (total $45 billion) and guarantees for $250 billion of its toxic assets. Bank of America also saw its cash injection upped to $45 billion and guarantees of $306 billion on its toxic assets. There was $30 billion for the automakers. 2009 saw a $75 billion rescue for homeowners, and a $770 billion dollar economic stimulus plan.
    Perhaps it’s best to stop calling these numbers “astronomical.” A better term might be “economic numbers”—dollar amounts so vast they dwarf time and space. When you are tossing around those kinds of numbers, what is another $800 billion program for mortgage-backed securities and credit-related assets? And as long as we still have some checks left, we might as well do a government-engineered takeover by JPMorgan Chase of Washington Mutual. The government tried to do the same with Citigroup and Wachovia, but Wells Fargo swooped in with a higher offer, suggesting that even in Bailout Nation, private capital still has its place.
    As a nation, we went from never bailing out anyone to somehow finding a seemingly inexhaustible supply of bailout candidates.
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