Wall Street is reacting favorably to the government seizure of Fannie and Freddie. But this is nothing to cheer about. It is quite the opposite. The question is, what’s next? Because these actions don’t prompt settling in the markets, they only create a “need” for more companies to be “bailed out, seized, socialized” or whatever you’d like to call it.

Fundamentally, it completely disrupts the risk/reward model in business. When big companies have a backstop against failing, they will take imprudent, excessive risks because there is no risk of failure. So thus, more bubbles are created, each one a little larger than the last.

The question is, who is next? Detroit’s automakers have already been asking the government for money. How about the airlines? My money is on the automakers. Any after their previous actions, how could Paulson and Bernanke say no?

All this really does is patch up the problem so the next administration can deal with it. Its not going away. You can’t have a solution until you fix the problem. The recent government action has just contributed to the problem.

The question now is how long until a Unification Board is assembled, and directive 10-289 is issued? Where is John Galt when you need him?

Last 5 posts by Michael E. Brisky

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