The Bailout Begins. Where's the Pain?

So this is what it all comes down to. This is what the free market is all about. This is what Capitalism brings to the table. That's what you're thinking, isn't it? C'mon. You can admit it. It's just you and me here. Those damn guys at Fannie Mae and Freddie Mac did this to us and they're going to walk away with millions while we get the royal shaft.

Sounds good, but it's more than that and less than that.

You see, we haven't really let the hallmark of Capitalism, the free market, work. We've never really allowed the market to work the way it's supposed to work. Free markets require pain to work properly. Sometimes it requires a lot of pain for the market to work properly. We've never really allowed the pain to be felt. The corrections have never been allowed to run their natural course before the government, with taxpayer dollars, rolls up its sleeves and digs its hands into the gears. People didn't learn their lesson after the dotcom bubble burst. They just transferred their fascination with tech stocks to a new-found mania for real estate. They never really felt the pain of the recession that should have followed the market meltdown because the government turned on the money spigots.

There was no reason for people to be cautious because the taxpayer was there to pick up the pieces. Free market? Give me a break. Government manipulation of the market is a fact of life and has been for a very, very long time. A regulation here. A regulation there. An implied government guarantee here, and the removal of a guarantee there. And voila. You have made the free market disappear. Where is the pain? I mean the real pain. The pain that makes us say, "Never again." The Great Depression pain that makes you skeptical of every snake oil salesman that comes peddling financial foofrooall for a long, long time.

Look at the CEO's and CFO's of every private financial institution that is currently being bought at firesale prices, or going into bankruptcy, or getting a whopping big taxpayer handout. Some of them, too many of them have been here before. Some of them, too many of them told us there was nothing to worry about. They knew what they were doing, even if it was too complicated to explain to little ol' me and you. Some of these guys (and women) got out within the last year or two with some pretty fat severance packages, which most of them will get to keep regardless of what the politicians try to tell us. Not only that, but some of these same people will collect some fat fees and paychecks for implementing any bailout program that does come down the pipeline. Ain't that grand? The people who screwed it up are gonna fix it......for a price. Where's the pain?

The superstar CEO that gets an obnoxious severance package regardless of performance is a widespread problem that's been around for quite some time, but really took root in the 1980's. This ain't just about quasi-governmental financial organizations and the hijinks of a few top corporate fat cats. And this ain't really about the failure of Capitalism. Capitalism hasn't failed us. Our insistence on not allowing the market to work has failed us. Where's the pain?

My worry is that any bailout will only prolong the reckoning and make it worse. Or maybe we'll go into a decade-spanning general malaise such as the 1930's Great Depression or Japan's deep malaise from 1989 until a couple of years ago, in spite of (or as some believe, because of) massive government intervention. I know. I know. Malaise doesn't cover the pain that individuals and families experienced during the Depression. Trust me. I'm not talking about us little folk. We keep getting screwed, no matter how it works out. I'm talking about the financial geniuses who pretend to be Capitalists, but go for the taxpayer handout every darn time. Where is their pain?

Quite frankly, I think very few of us have confidence in the people running things both in and out of the government. Oh, they may have been warning about what was to come, but their actions were contradictory to their warnings. You can't warn about people gorging themselves on easy credit, yet keep the money spigots wide open while telling people to do their patriotic duty and spend, spend, spend; you can't tell people that exotic derivatives will be the death of the economy, then commit the bank holding company you run to tens of billions of dollars in ever more clever derivatives while telling yourself that you're just helping to grease the wheels of the economy; you can't tell everybody that the economy is fundamentally sound and you've got everything under control, then scream that if we don't mortgage the Treasury into the next century we're going to reprise the Great Depression.....you just can't do all these things and then expect reasonable people to believe that you are responsible and knowledgeable enough to prudently use taxpayer dollars to guide us out of this mess.

And you sure as hell can't tell me that you're a proponent of Capitalism when you keep getting your tails pulled from the fire by the taxpayers. This criticism covers both sides of the aisle in the Capitol building, both candidates, the President, the Secretary of the Treasury, Greenspan and Bernanke. I'll give Paul Volker a pass. He gets it. He knows about the pain. You know who doesn't know the pain? You know who just doesn't get it? Just about every top executive of any financial company currently awash in credit default swaps, stripped coupons, sub-prime and upside-down mortgages, or any other exotic derivative that can't currently be priced with any semblance of confidence. Their companies may be wiped out. Their employees may go broke. Their clients may be crushed. Them? They'll be fine. They may have to sell the private jet, the third palace, the boat, and a few baubles.....but, they'll be fine. Where's the pain?

You know who else just doesn't get it? The top dogs at the U.S. automakers. They get a 25 billion dollar loan guarantee from their pals in Washington because the gas guzzlers they've been making aren't selling and they need to retool to compete with the foreign automakers who are already tooled to build efficient vehicles, but they're confident that the loan guarantee guidelines written by their pals in Washington will be liberal enough for them to use any way they see fit.....including not retooling to make efficient cars. That's Capitalism? That's the free market at work? Notice those bastions of Capitalism are pretty happy with the word "liberal'' in that context? Where's the pain? These are the people who are going to lead us out of this mess?

We have a crisis in confidence in the public and private leadership of this country. That crisis in confidence could end up being the most debilitating crisis to hit this country. Or it could be the wake-up call needed, finally, for true market accountability. That is, of course, assuming that the right people feel the pain.