Where Should the Government Draw the Line?

This morning, I am appearing on the CBS Early Show and then running back over to my show at Fox. One of the things shows do is they pre-interview you to see how you feel about a specific topic. Last night the CBS Early Show team asked me the following questions. My responses are below. 

They want to talk about how it seems like every week there’s another bank or institution that’s getting bailed out (auto industry)…at what point will someone say that the gov’t needs to stop bailing companies out? Who’s next? Where does the bailout stop? How far is this going to go? Where should the gov’t draw the line? 

Answers:

One, this is absurd. We have gone too far and we are now walking down a very slippery slope. When American Express becomes a bank holding company overnight and is waived the thirty day review process, that tells you that we are incentivizing companies that can apply for the funds to figure out how to get access by changing the nature of their business. 

Two, today we learned what? Banks need capital. Nothing new. Non-bank financials are suffering. We will give them access but we don't know how and oh by the way it's dangerous because they are unregulated. And in case you missed it, 40% of consumer lending in this country via auto, student and credit card loans survives or lends by securitizing or selling those loans in the marketplace and newsflash no one wants to buy those loans. That threatens lending. Of course it does. Why would I want to buy a mortgage with assets tied to the health of the consumer when credit card delinquencies are at 6%? Of course no one is buying those assets. Did we get any concrete answers.....NO. 

Three, didn't Paulson say the root of the problem is housing? So why are we still arguing about the solution? There's a plan called Hope Now, FHASecure, thru Fannie and Freddie, by the FDIC, by private banks. Are you confused? Is it a mess? Is there one central well thought out solution? No. Ask any borrower or home owner how to figure this out? They're at a loss. Should we do something to help homeowners? Absolutely. Why didn't we address this from the start? How come there wasn't language in the original TARP program that required financial instiutions to refinance homeowners if they took TARP funds. It's a mess!!! 

Four, what we have right now is a lack of confidence. We thought / hoped / prayed that Obama would change everything. He might, but we are not going to see a lot of him between now and inauguration day. This is a not his mess and the stakes are so high. He needs to come out swinging. These cabinet positions are crucial. A new Treasury Secretary is essential. Every day that the situation gets worse, the ante rises. Not good for Obama.  

Finally, it's ugly and it will not be the perfect holiday. Far from it. We all will tighten our belts over the next year but we are learning some valuable lessons. The savings rate in this country is just above 0%. It's projected to be 2% by the end of '09 and 3% at the end of '10. We need to change our habits. We will feel pain. We will also get a healthy, sizeable second stimulus package. You can bet on that!