Bailing Out Your Neighbor

CNBC’s Rick Santelli, who, some might say, gets too much airtime anyway, caused a minor international stir last week when he launched into an impromptu tirade against any fiscal policy that bails out (for example) his profligate neighbor, the one who purchased more house than he could afford, using his tax dollars. It was a live outburst and it was seen by millions. And it underscores a serious issue for which there is no clear solution.

The issue, one that we have discussed before, is the arrogance of man and his belief that, through his cleverness, he can reverse the cycles of nature.

Ups and downs are as natural to the economic system as they are to any other aspect of science or biology.

Any fifth grader can explain a sine wave to you, yet modern governments believe that they can abolish it by mere dictum.

However, only in the last 100 years have world governments had the power and technology to seriously interfere with these cycles in the name of making a better world. That “better world” is the mess we now have in front of us.

And the Obama team has taken the position that, unless they fix it “quick and dirty” (by throwing good money after bad, right now, today), then the damage will become so bad that it will stop modern civilization in its tracks.

We have sympathy (but not empathy) for the Obama position (ignoring for the moment that the same yokels who created the problem are being asked to fix it) and we also have compassion for Santelli’s view.

Santelli represents the millions of Western players who are not in a major financial bind — at least not yet, which is a distinction — who can focus only on the fact that the “quick and dirty” fix being contemplated rewards the incompetent, the foolish and the dangerous. As with most modern puzzles, both positions have points of merit, but there is no clear compromise or solution.

For example, one area where history may not be kind to Team Obama is the issue of “zombie institutions” — a term that has been coined to describe firms that were already on the road to ruin before this mess, and clearly do not deserve to take precious resources from other, more viable firms, firms with a better future, during the delicate process of bailout. Japan protected its zombie firms in the 1990s, and paid the price. The U.S. appears to be doing the same.

Santelli looks at the fools (both corporate and consumer) being bailed out now, today, with his precious tax dollars, and he is horrified. Team Obama looks at what could happen if the bleeding does not cease, and they are horrified. No matter how you slice it, this is indeed a time to be horrified. And to hope there are better days ahead.

Most interesting perhaps is that, after his tirade, Santelli was invited to the White House. (Could this have happened with the last President?) One wonders if the invite made with a genuine desire to share views or a concern that Santelli might be the “canary in the mineshaft” in a country that, lest we forget, was actually founded on the notion of tax revolt!