In this morning’s Washington Post, Vincent Reinhart explains why the Bear Stearns bailout is already causing ripple effects:
Politicians seeking to expand the role of government to help ease problems in the mortgage market face an inconvenient fact: Most Americans own their homes outright, meet their mortgage payments or are renters. As a consequence, mortgage relief never polls well. When people are asked whether they think government aid should be given to households failing to meet their mortgage obligations, a majority routinely says no. The average American, meeting the struggle to live within his or her means, bridles at the notion that those who are overextended should be helped.
The Federal Reserve‘s decision in March to lend to the investment bank Bear Stearns changed this debate forever. Fed officials took the unprecedented action of extending the agency’s safety net beyond the banking system. Presumably, they were balancing the risk that other failures would be triggered should Bear, the nation’s fifth-largest investment bank, default on its obligations against the precedent of such lending.
It is probably impossible for anyone who was not in the room during those negotiations to accurately assess that balancing act. Still, there is one certainty: That decision to solve the problem immediately at hand will have long-term consequences. In particular, the Fed’s action tipped the political balance toward providing direct subsidies to households having trouble meeting their mortgage payments.
The bailout of Bear’s creditors has allowed the political question to be reframed. Now voters can be asked more than whether federal aid should be given to overextended homeowners.
In other words, the Fed’s bank bailout set the stage for endless bailouts of anyone and everyone. Made a rash decision? Invested poorly? Just stick out your hand and cry, "We need relief!"
This is, of course, the point FreedomWorks has been making for a while: