Where’s your bailout? Hold on

The anti-bailout camp in Congress now has tried twice to halt the use of tax dollars to rescue the private sector.

They’re batting 0 for 2.

This can only be encouraging for everyone else who’s wondering, “Hey Uncle, where’s my bailout?” Home builders, for example. Millions more struggling homeowners. The state of California. Maybe the newspaper industry?

Let’s look at the score card:


The House’s initial rejection of the $700-billion financial system bailout in late September sparked a stock market dive that caused dissenters (Republican and Democrat) to cave. Within a few days, they approved the rescue on a second vote.

This week, Republicans in the Senate late Thursday blocked a plan to provide $14 billion in aid for the auto industry. The stock market on Friday again reacted with a tantrum until the Bush administration signaled a willingness to step in and provide Detroit with money from the financial-rescue pool.

The Dow Jones industrial average ended the day up 64.59 points, or 0.8%, to 8,629.68, recovering from a 217-point morning plunge. General Motors Corp. shares, which fell as low as $2.61 early Friday, ended with a modest loss of 18 cents, to $3.94.

The White House’s turnabout on auto-company help should thrill the home-building industry, which has its own suggestion for a bailout. The builders want Congress to underwrite ultra-cheap mortgages for home buyers -- a 2.99%, 30-year loan rate for purchases made by June 30 of next year, and a 3.99% rate for purchases in the second half of the year.


California and other cash-strapped states also may be seeing an opportunity. The Treasury and Federal Reserve so far have resisted the idea of coming to the aid of fiscally challenged municipalities. But as The Times noted this week, California now is staring at a budget gap of as much as $42 billion by July 2010 as the economy crumbles. You can’t close that just by raising vehicle license fees.

If Citigroup Inc. and GM are too big to fail, what about California?

Sacramento, and everyone else who needs a hand, knows the Obama administration is at least likely to listen. The president-elect has said he will do “whatever it takes” to fix the economy and avoid Great Depression II.

His staff, and congressional leaders, already are working on a job-creating fiscal stimulus plan that House Speaker Nancy Pelosi on Friday said could total $600 billion. It would target traditional infrastructure spending (such as for roads and bridges) as well as enhancements to the nation’s technology infrastructure (think: broadband Internet expansion).


The new administration can opt to call that spending an investment rather than a bailout -- just as current Treasury Secretary Henry M. Paulson’s injection of more than $300 billion into banks and other financial institutions is supposed to be an investment that ultimately will pay off for taxpayers.

As an employee of Tribune Co., which filed for bankruptcy protection this week, I admit some regret that there’s so far no federal bailout under discussion for the fast-shrinking newspaper industry. I wonder what Thomas Jefferson would say about a government that supports banks and auto companies but lets the free press wither.

(Of course, with government assistance we would no longer be considered free.)

The newspaper business aside, it seems very clear that the private sector’s call on federal resources is just in its initial stage.


It isn’t difficult to connect the dots in this devastated economy: Many consumers have been living beyond their means for years, and have little in savings. Now, with a serious recession underway, there is no fallback for many families but what the government can provide.

At the end of September, a record 1 in 10 homeowners with a mortgage was at least a month behind on payments or in foreclosure, according to the Mortgage Bankers Assn. And that was before the economy fell off the cliff in October and November, and layoffs soared.

We can only wonder what the percentage of troubled mortgages will be by spring as unemployment continues to rise sharply.

With the economy likely to contract at a stunning 5% annual rate, or worse, in the current quarter, some analysts say the situation is dire enough to warrant a federally sponsored bailout of every American homeowner.


Edward Yardeni, head of Yardeni Research in Great Neck, N.Y., is calling for a program that would offer to refinance every U.S. home mortgage at 4% or 4.5%.

“That’s the best way to revive economic growth fast,” he says. “It would be equivalent to a major tax cut for consumers.”

Investment firm Bridgewater Associates, in a report this week titled “The Shock and Awe That Is Necessary,” estimated that the government would have to boost its spending to 25% of gross domestic product, from about 20% earlier this year and just 18% in 1999, “to offset the collapse in the private economy.” And that would just get the U.S. to a zero growth rate, not back into expansion mode.

“The era of small government is over,” the firm said.


That may be repugnant to a lot of people who’ve managed their own finances responsibly. But what is the alternative to government intervention at a time like this?

Imagine the reaction in financial markets if the government’s response to the economy’s slide were a shrug.

The stock market obviously -- and ironically -- is cheering more federal spending. The Dow index is up 14.2% since hitting a five-year low on Nov. 20.

At the same time, with many shell-shocked investors worldwide still reluctant to take risks, demand for Treasury securities remains enormous.


The government this week sold four-week T-bills at a zero interest rate. Even on new three-year T-notes sold on Wednesday, investors were willing to accept less than a 1.25% annualized yield.

As long as the government can borrow so cheaply, and with no sign of the economy turning around on its own,

the markets are essentially signaling that an expanding bailout mentality in Washington isn’t just tolerated -- it’s welcome.