Bailouts -- Be Very Particular

If we're going to bail out Wall Street, shouldn't we also rescue homeowners? "Yes!" the Democrats answer. And faster than Roger Federer returns a tennis ball, conservative voices hit back with reasons -- some rather odd -- for helping the former and not the latter.

Here's a sensible compromise: Let's selectively help homeowners in trouble. These would be mortgage applicants who didn't lie about their income and have a prayer of paying the money back. Likewise, let's insist that the Federal Reserve carefully choose which investment bankers merit taxpayer support.

Sadly, the Fed plans to start with a company that's among the least deserving. That would be Bear Stearns.

Seattle hedge-fund manager Bill Fleckenstein has been making the case against a Bear rescue. "Why not set an example of Bear Stearns -- the guys who have this record of dog-eat-dog, we're brass knuckles, we're tough?" he told The New York Times.

In the '90s, Bear worked with several low-life brokerage firms that aggressively sold their crummiest stocks over the telephone. It financed subprime lenders who trafficked in complex, high-interest loans for low-income people. Last summer, it tried to unload some of its sick mortgage-backed securities through a new company bearing the spring-like name Everquest Financial.

Several conservatives now argue that poor little Bear Stearns has suffered enough and, in any case, is not going on the taxpayer dole.

"In no way can the Federal Reserve's loan to JPMorgan to help buy Bear Stearns be considered a bailout," say our friends at the Heritage Foundation Website.

"Bear Stearns shares were worth $160 a year ago and went for $2 in the JPMorgan acquisition," they say. How could the employees who had invested their savings in the company stock feel "bailed out"?

Here's how. As part of the deal, the Fed is guaranteeing $30 billion in Bear Stearns securities. In other words, taxpayers are on the hook. One may empathize with people who invested in a nasty company engaged in reckless speculation, but must the taxpayers get involved?

Over at the American Enterprise Institute, Kevin Hassett argues that politicians are conveniently blaming "greedy home buyers" and "the lunacy" of lenders for creating the housing bubble. Regulation, he says, is the culprit.

Land-use laws in such states as California played a major role in creating the bubble, he argues. These growth-management policies make land more expensive, raising the price of homes.

No doubt these environmental rules have an impact (in my opinion, one that's worth it). But how does Hassett explain why home prices are now plummeting in Southern California while the land-use regulations remain unchanged?

Over at NewsBusters, a goofy blog run by the right-wing Media Research Center, Noel Sheppard takes issue with ….Fleckenstein! The hedge-fund manager was a guest of ABC's George Stephanopoulos, who failed "to fully apprise viewers of Fleckenstein's vested interest in -- and well documented prognostications of -- our nation's financial collapse."

It's true that Fleckenstein had been short-selling stocks based on his well publicized belief that the stock market was grossly overvalued. But that makes him smart, not devious.

By the way, Fleckenstein was recently on NPR describing the necessary next steps: "What needs to be said, is, 'OK, folks, we have this mess, we have to clean it up, and we have to make sure it will never happen again.'" Alas, he added, Washington has yet to show the will to apply the regulations needed to prevent a repeat.

In the end, taxpayers may have to bail out many bad players, but couldn't we let at least one slip into the fiery pit of bankruptcy? For that honor, I nominate Bear Stearns.

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Views expressed in this column are those of the author, not those of Rasmussen Reports.

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