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Wall St. bailout leaves the little guys hurting

The Baltimore Sun

Talk about hypocrisy.

When the housing bubble started to burst more than a year ago, the airwaves and news pages were full of denunciations of reckless and irresponsible homeowners. Not only conservative members of Congress but also many economists and average citizens were united in their contempt for the dummies in foreclosure, who, they said, were undeserving of taxpayer-funded bailouts.

My, how things have changed. Suddenly, Congress and the Federal Reserve Bank have discovered a crisis deserving of tens of billions - perhaps hundreds of billions - in cheap loans, tax credits and other subsidies. The turnabout was sparked by the near-meltdowns of big Wall Street firms, which apparently couldn't be allowed to collapse.

So, it's now clear how things work: You, the average homeowner, are not entitled to a government bailout, especially if you were too gullible to understand the terms of your mortgage or too greedy to resist a big, fancy house. But if you're a Wall Street institution, you're entitled - all the more so if you were too gullible to understand the complex financial instruments in which you were investing or too greedy to resist the millions you might (or might not) earn. Got that?

If Republicans see any political downside in trying to explain that disparity to voters, they're ignoring it. This past week, they rushed to put together a massive handout to homebuilders, mortgage companies and speculators - among the prime architects of the housing bubble - but refused to go along with Democrats who wanted to give struggling homeowners a similar boost. They stiffed the little guy even as Federal Reserve Chairman Ben Bernanke was finally uttering the "R" word, recession.

In principle, there's no problem with government intervention in the credit crisis. If the big pols and central bankers put together a well-crafted plan, they may actually manage to do more good than harm, providing a softer landing for an economy in a tailspin. After all, there is absolutely nothing wrong with an activist federal government that acts to protect the common good, whether with a bailout for unsophisticated homebuyers whose mortgage payments suddenly skyrocketed or with financial backing to prevent the collapse of a Wall Street firm like Bear Stearns, where supposedly sophisticated traders crawled out so far on a limb that they brought down the tree.

But, for heaven's sake, let's have a little honesty and consistency here. Let's admit that the pain inherent in ruthless economic Darwinism can be harsh, unremitting and contagious, giving government an incentive to provide a little pain medication for big players and little guys alike.

Instead, sometime in the past few decades, Washington adopted an ethic that advocated economic efficiency, allowing the marketplace to seek its own balance without much in the way of government intervention - or regulation. It was the belief system not only of Republicans but also of the Democratic Leadership Council, which provided the intellectual foundation for the presidency of Bill Clinton. His fondly remembered treasury secretary, Robert Rubin, was an adherent of the religion deifying unfettered capitalism.

Among the more devout believers, there was nothing government could do right and nothing business could do wrong. For Republican politicians, especially, "run government like a business" had become part of Scripture. In truth, his management of USA Inc. suggests that George W. Bush has carefully followed the examples of Bear Stearns and Countrywide.

The marketplace needs the leavening of government regulation and occasional intervention. Even supposedly sophisticated global investors can get carried away by greed, underestimating risk and overestimating their own financial savvy. If their machinations have a huge effect on the economy, and their firms can't be allowed to fail, then their practices must be regulated.

Nor should struggling homeowners be abandoned just because they made some financial decisions that, in hindsight, weren't so smart. Homebuilders did the same. So did Wall Street investors. So did big banks. If they deserve help, so does the average schoolteacher trying to fend off foreclosure.

Cynthia Tucker is editorial page editor for The Atlanta Journal-Constitution. Her column appears weekly in The Sun. Her e-mail is

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