The taxpayer stepped up to the plate in the fall of 2008 to underwrite General Motors and FNMA and FMAC requiring a commitment of $ 250 billion plus. We are now approaching round two. Government Motors, as most people now call GM, is rapidly on a glide path to another bankruptcy, which will cost taxpayers approximately $ 50 billion and require, at a minimum, another $ 25 billion to protect the unions' juicy benefits. Fannie Mae and Freddie Mac have an unlimited lifeline and their losses, now over $ 200 billion, are essentially unlimited. But both GM and FNMA and FMAC have created many more millionaires as government-appointed bureaucrats, lawyers and accountants feast at the taxpayer's expense. This is what happens when the government gets involved.
Europe has its own version of this. Propping up banks in Spain, France and Germany has simply made matters worse in the Eurozone and has weakened, not strengthened, the banks.
GM and Fannie and Freddie and the European banks should have been permitted to fail. By now, a new automobile company financed and organized by the private sector would have emerged and would be competing globally in a way that GM will never be able to. Propping up Fannie and Freddie has prevented a housing recovery and cost the taxpayers hundreds of billions of dollars. Had there been no bailout (and no Dodd-Frank), housing would now be in its second year of a strong recovery. Pretending that Spain's banks are saveable has cost the Spanish government and European taxpayers several hundred billion euro -- so far. Meanwhile unemployment in Spain surges past 25 percent.
Simply letting companies fail when they make bad decisions or when they are the victim of bad luck is the proper response. Getting government into the act has never worked and it never will. It only makes matters worse.