Not Everyone Is A Fan Of Proposed US Bailout

Criticism is starting to mount over the US government's proposed bailout of the ailing financial markets before its even happened.

Critics say that government actions, such as those that prevented the failures of Fannie Mae, Freddie Mac and American International Group Inc., can't postpone the inevitable worsening of housing and financial markets. They say the bailouts by the Fed and Treasury also encourage future reckless risk-taking by investors.

They have a point.

The Fed or Treasury first stepped in to rescue investment bank Bear Stearns Cos. in March, followed by the takeover of mortgage companies Fannie Mae and Freddie Mac in September. This week the Fed put up $85 billion to keep insurance giant AIG afloat, and Congress is mulling tens of billions of dollars in loans to Detroit automakers.

Critics are asking: "how far down the road do they go, and where do they stop?"

The ranking Republican on the Senate Banking Committee, Richard Shelby of Alabama, said he wants the Fed to let markets work rather than opt for bailouts, even if the consequences are "brutal."

Peter Boockvar, an equity strategist at Miller Tabak & Co in New York, agrees. Bailing out Bear Stearns and creating lending facilities for investment banks, he said, "gave financial companies a false sense of security that they had time to de-lever at their leisure."

Unless the central bank stops interfering with market discipline, Wall Street's problems will continue, he said. "The market can get to the right price on its own," Boockvar said. "Anything that prevents it from happening is just prolonging the inevitable."