Because this worked so well last time…
Via Drs. DeLong and Black, the WaPo reports that this version of the S&L crisis will repeat the mistakes of the last one:
Instead of giving each company a big capital infusion upfront, the government could make quarterly injections as the companies’ losses warrant, the sources said. This would be an attempt to minimize the initial cost of the rescue. [emphasis mine]
And why are they doing this? Who gets protected while the hemorrhaging continues?
The value of the companies’ common stock would be diluted but not wiped out, while the holdings of other securities, including company debt and preferred shares might be protected by the government.
So who are the major individual holders of the stock? Why, the directors of the company, the five of whom listed hold over 2.1 million shares.
That is, the same people who were tasked with ensuring that the company was well run—and have failed miserably at it—are being saved by the form of the bailout, while the cost—again, judging by the lessons of the slow-motion S&L meltdown—will be increasing for the taxpayers.
The next time someone asks me if I believe in “free-market capitalism,” I’m going to ask if they believe in the Easter Bunny.