Wall Street Welfare As Recession Nears

There is increasing talk from brokers and companies on Wall Street about the possibility of the federal government bailing out large companies in order to keep them from going out of business and laying off thousands of employees. In effect, Bear Stearns was the first Wall Street company, in a long time, to be bailed out by the federal reserve and JP Morgan Chase. While JP Morgan Chase has been reportedly able to buy Bears Stearns at a fire sale price, in fact what JP Morgan Chase got when they took over Bear Stearns, might be a boat load of problems coming back to bite them some time down the road.

The free market system only works if there is a legitimate fear that if businesses do their jobs wrong, then they get eliminated and go out of business. Without that fear of failure element, businesses will not have the fear necessary to do the right thing and even more bad business decisions will be made down the road. Unfortunately, there are Washington politicians that run this country from a purely short sighted point of view. Anything that might happen after the next election is not important to them, so more than likely Members of Congress and President Bush will most likely take our tax dollars and bail out for profit companies as the economy continues to slide.

Another bad aspect of bailing out huge companies is that these decisions will not be based on fairness, but instead on how many jobs will be lost if a particular company goes belly up. While thousands of smaller companies will be allowed to fail, some of the nations biggest companies will be bailed out when in fact those big businesses were the cause of the problems that put the little guys out of business. I call these types of bail outs, rewarding bad business, and when that is done it encourages more big companies not to act in a responsible way either.

Most of the time it is wrong for politics to mix with business. However, in today's economy with globalization the biggest buzz word of the day, politicians and corporate CEO's are working close together which will lead to more problems down the road. For many years, large public companies have rewarded their CEO's with multi million dollar severance packages even after they lost their stockholders millions of dollars. While good and honest people end up losing their jobs when their companies make bad choices, the entire capitalistic system of the United States will fall apart if bad companies are not allowed to fail.