Why the bailout is bad for business

Bailing out failing companies without restoring investor confidence is useless. Deteriorating financial institutions hurt our economy, but the resulting decline in investor confidence is the real crisis.

It’s important to remember that these businesses failed for good reasons. They took on reckless investments, sometimes at the urging of the federal government who now wants to hand over $700 billion to revive our tanking economy.

If officials really want to stop the bleeding they’ll halt earmark-laden legislation and start working with financial markets, encouraging more deals like the WaMu and Wachovia buyouts. In the days following the crash, the federal government has overestimated it’s own political clout. Consumers won’t invest their hard-earned dollars simply because you tell them it’s safe. At this point, confidence would be better restored with corporate solutions, especially in the U.S. where faith in our government is dwindling.

Over the past week, countless economists and journalists have compared this crisis to the events leading up to the Great Depression. It’s hard to deny the parallels: the three greatest tragedies that tanked our financial system during the 1930s were the credit crisis, irresponsible lending on the part of financial institutions, and the government’s failure to provide aid to struggling families. Our current situation paints a distressingly similar picture. It makes a government rescue seem necessary, if not inevitable.

But don’t underestimate the market. Overzealous intervention could do more harm than good. The market weathers peaks and valleys with remarkable resilience and it will eventually self-correct. We may not all be better off when that happens: homeowners who bit off more mortgage than they could chew could still lose their homes, and fiscally irresponsible companies could still be out of business. But allowing this process of economic natural selection is the best solution.

If we must have government involvement let it be limited to helping the families most affected by this crisis. Let’s come up with payment plans to help middle-class Americans keep their homes.

With the Dow still hovering above 10,000, we’ve yet to see the bottom of this slump. But a $700 billion lifeline won’t stop the recession in its tracks.

You can take that to the bank.