The message to the wider economy is devastating: If you are an executive who incompetently managed your business and you have a friend in Washington, the taxpayer spigots will flow. In exchange, Washington will assert even greater control over your business, which will mean a cycle of mismanagement, taxpayer bailouts, politicized instructions from Washington, leading to more mismanagement and more taxpayer bailouts. No competent businessmen will want any part of this deal. The incompetent businessmen will continue to get rewarded by the hard-earned dollars of you and me. This is a Ponzi scheme in essence -- an attempt to grow the real economy by expanding the government economy. It won't work.
And it's so unnecessary. We already have a process designed to replace the leadership of mismanaged companies with more effective leadership and also develop a plan to get those companies back on the road to recovery, if it is at all financially possible: It's called bankruptcy.
In modern bankruptcy, the people who messed up the company lose their jobs. A new management team is brought in to try to repay the debts the company owes in a way that also protects the most important asset -- the productive enterprise itself. A judge, not a politician, oversees the process. The goals are clear and specific: Pay back the debt, get the business back on its feet. Friends in Washington have nothing to do with it.
The great problem with the economy right now is a general deflation and looming depression brought about by the collapse of credit markets in the real working economy. Funnelling more money to bungled enterprises and transferring control over those enterprises to politicians can only serve to underscore for already panicked markets the obvious truth: The government has no clue.