The reality of the Paulson/Bernanke bailout plan is that it will reward the shareholders, executives and bondholders of the firms involved for their imprudent behavior. Their gains will be preserved at the expense of the taxpayers. The reason for doing this is essentially blackmail, that if these firms fail, the financial system will “melt down,” whatever that means. Essentially, Paulson is negotiating with hostage-takers.

Even if this dubious proposition were true, the proper remedy is to put these companies into trusteeship, but allow them to continue to operate. The executives would be terminated, the shareholders and bondholders would suffer losses as their interests appear.

Rewarding excessive risk taking and ruining the free market forever is too high a price to pay for short-term convenience. There needs to be balance. Unfortunately, there is an election close at hand. Both parties will compete to deliver the maximum amount of pork. The loss of free and fair markets will cause great pain, as the cost of capital will be increased and economic growth will be sacrificed. Investors will go elsewhere and the US will lose its status as the financial hub of the world.

Edit: As the government seeks to replace the rules of the marketplace with the arbitrary decisions of bureaucrats like Bernanke, Paulson, and Cox, I’m reminded of Sir Thomas More’s speech from “A Man For All Seasons:”

MORE (Roused and excited) Oh? (Advances on ROPER) And when the last law was down, and the Devil turned round on you-where would you hide, Roper, the laws all being flat? (He leaves him) This country’s planted thick with laws from coast to coast-man’s laws, not God’s-and if you cut them down-and you’re just the man to do it-d’you really think you could stand upright in the winds that would blow then? (Quietly) Yes, I’d give the Devil benefit of law, for my own safety’s sake.