The Politics of All This

First off, who knows if the bank bailout, whether in its current or in some future form, can work? Personally, I have my doubts, but they are grounded more general economic, cultural and political concerns than the specific financial mechanics of any particular program. Leaving those doubts aside, a bailout will work, or it won't work, one or the other. What are the consequences?

The economic consequences of a failed bailout are very bad indeed. But, I'll argue that, for the financial services sector, the political consequences of a successful bailout may be even worse. It is a matter of timing.

The current recession is still gathering steam. More likely than not, it will bottom out, perhaps on the schedule predicted by the all-powerful Fed Chairman, sometime next year, maybe a bit before. But bottoming just means things stop getting worse, more or less. So there we sit, with double digit unemployement, most of the country upside down on its mortgage, our cars are getting older, and so are all the other baubles imported in the glory days. The cult of the CEO is a dim memory. Paris Hilton and the celebutantes an embarassing one. Thin may still be in, but rich won't be.

Meanwhile, TARP has turned out to be a huge success. Banks are again profitable. All the losses from the housing bubble's collapse have been nationalized, but the customer gouging profitability of an oligarchy of regulatorily privileged financial institutions has been re-established.

Something tells me the public perception of all this will not be that Ken Lewis and his ilk were far sighted visionaries deserving of all the wealth bestowed on them by their grateful boards of directors. Something tells me you'll get a nice slow burn that will just grow until it finds an outlet.