NYT editorial: Bailing Away

The federal government is going for broke in an attempt to avert the type of calamitous financial collapse that led to the Great Depression. No one would fault the objective, but throwing money at the problem is becoming an end in itself.

Last week alone, while everyone was still arguing whether a $25 billion loan to the Big Three carmakers would be money down a sinkhole, the government committed more than $1 trillion to prop up Citigroup and to try to spur lending to consumers and home buyers. Moves to stabilize the system this year have put Americans in harm’s way from possible losses on nearly $8 trillion pledged in loans, guarantees and investments to financial firms. And the crisis is far from over.

This page has consistently held that the government must intervene in markets when failure to do so would cause even greater economic harm. The impending collapse of Citi or an unrelenting credit freeze demand intervention. But good crisis management also requires that the calamity of the moment not be allowed to overwhelm good governing. Unfortunately, that is not the case now.

Even, as the rescue tab rises, taxpayers are not being adequately informed or protected. There is as yet no effort to deal effectively with the underlying causes of the problem, especially mass mortgage defaults that feed bank losses. And officials seem to think urgency to act absolves them from considering the longer-term implications of the actions they take.

(More here.)