bailout

Capitalism is in crisis, claims Richard Posner on the pages of the Wall Street Journal today. This crisis happened, he says, because “a capitalist economy, while immensely dynamic and productive, is not inherently stable.” Furthermore, he suggests that “the banking crash might not have occurred had banking not been progressively deregulated beginning in the 1970s.”

In the past months, Washington has used its pull over and over to force businessmen to buy into its programs. From cornering banks into accepting TARP money to firing GM’s CEO to insisting that AIG employees return their contractually guaranteed retention bonus—Washington has demanded and businessmen have acquiesced.

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Bank of America CEO Ken Lewis has sparked controversy in his recent testimony to regulators. Lewis has revealed that he was threatened, by then-Treasury Secretary Hank Paulson and Chairman of the Fed Ben Bernanke, to buy Merrill Lynch, a company drowning in financial losses of billions of dollars.

In spending its way to economic recovery, the government boldly casts principles aside

Many Americans have experienced the adverse consequences of the recent economic downturn: retirement savings wiped out, jobs lost, or at least a general feeling of financial uncertainty.

The recent bonuses paid to executives in the financial division of AIG have created a firestorm. In response to the national outrage, the government has bent over backwards to find some loophole that would allow it to take back these bonuses, bonuses that were not shadily distributed to these executives but were contractually promised to them.

The continuing AIG controversy is a textbook example of blaming the market for the sins of government. Rather than allowing a bankrupt company to get its just desserts, the government stepped in and took it over. Now taxpayers are on the hook for billions of dollars in bad bets.

President Obama has declared that "There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy." Indeed, both Democrats and Republicans in the Obama and Bush Administrations have called for vast increases in government spending. Many among the public also agree with this approach: prior to the approval of the latest $787 billion economic stimulus bill, a Gallup poll taken in February observed that a slight majority of Americans were in favor of its passage.

Over the last few days Washington has been denouncing AIG for paying out retention bonuses to employees in its financial-products division—the same division responsible for much of the company’s recent losses.

Relegated to the background is the fact the bonuses are a lawful contractual obligation.

Ailing automaker Chrysler LLC has entered into an agreement with Italian carmaker Fiat SpA. The deal would involve an exchange of technology and access to distribution networks, giving Fiat a 35% stake in Chrysler without it having to pay a single euro.