Academic

WELFARE KINGS? FEDS TO BAILOUT BANKING INDUSTRY

By Darren Hutchinson

Conservatives and liberals alike have maligned governmental subsidies to poor people.  One of the most pejorative terms to come out of those debates is the “Welfare Queen.”  She defies statistical data (most welfare beneficiaries are white), but she is the icon of waste and laziness.  She is a black woman with countless children who have just as many fathers.  She is robbing and bankrupting the government and “breeding” a generation of mess.  And, certainly, the government should not reward her bad behavior. 

Paul Krugman’s latest column in the NY Times predicts a federal bailout of the banking industry.  Friday’s Fed-orchestrated dumping of money into Bear Sterns was simply part of a broader transaction announced today, which involves JP Morgan purchasing the troubled investment firm.  Fed financing also helped Bank of America purchase Countrywide.

 I actually believe that financial liquidity helps the economy; thus I do not oppose some governmental intervention.  But I also believe that investing in human capital is vitalfor our society as well.  Only a few commentators have criticized the irresponsiblity of banks and their role in contributing to the recent economic downturn, but I have heard a lot of folks go after “subprime” borrowers.  Subprime is the new welfare. 

Will we see a surge in commentary on the irresponsible behavior of financial institutions? Bear Sterns did not have a highly diversified portfolio and was blown away by the subprime mess.  The same story applies to Countrywide.  Subsidizing its misconduct and irresponsible behavior would seem to raise the same issues as the welfare debate — but with greater force, given the impact of national banking decisions on the broader economy.  Are bailed-out banks Welfare Kings? What distinguishes their poor behavior from the poor behavior of the poor (yes - 3 times in one sentence)? 

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Full post as published by BlackProf on March 17, 2008 (boomark / email).