So when do we let economic nature take its healthy course, and when do we intervene with taxpayer dollars to bail out large failing institutions? This week, poor old Lehman Brothers was being cheered into bankruptcy by an unholy troika of commentators, experts and presidential candidates -- as an example, "Pour encourager les autres." (The full quote from Voltaire -- in translation -- is, "In England, it is good, from time to time, to kill an admiral to encourage the others.")
But only last week, not only both candidates for president but also even such a free market man as Larry Kudlow called the taxpayer backing of Freddie Mac and Fannie Mae "a necessary action (to stop) a global money meltdown." But, he continued, "It raised the stakes for taxpayers once more." And Kudlow -- whom I both admire and consider a friend -- also backed the bailout of Bear Stearns in order to safeguard "the banking system and the whole global financial structure."
So slogans such as no more taxpayer bailouts are meaningless verbiage (although what is said in presidential campaigns sometimes -- if we are not careful -- actually can become government policy the following year).
In fact, it is always a matter of nice judgment whether the system needs protection or whether it can withstand the tough, but fair workings of the marketplace. This week, the consensus judgment was that Lehman fell into the latter category. Time will tell because the markets and the public mentally had to absorb not only the Lehman bankruptcy but also the Merrill Lynch purchase by Bank of America and the possible fatal illiquidity of AIG -- the insurance giant. The first reaction was a 504-point drop.
As I write, Tuesday markets are not closed yet. But it may be months before we know whether it was wise or foolish to "protect the taxpayers" last weekend.
But here is the kicker. About a year ago, the Fed held about $800 billion in securities to use to finance bailouts and for other purposes. As of this week, they are down to about $475 billion in assets. If things get worse and persist, they may not have enough securities to act in the future.
Blankley, who had been suffering from stomach cancer, died Saturday night at Sibley Memorial Hospital in Washington, his wife, Lynda Davis, said Sunday.
In his long career as a political operative and pundit, his most visible role was as a spokesman for and adviser to Gingrich from 1990 to 1997. Gingrich became House Speaker when Republicans took control of the U.S. House of Representatives following the 1994 midterm elections.