June 11, 2009 / 7:48 PM / 10 years ago

Bailout study widens the "Big Picture"

NEW YORK (Reuters) - Readers of Barry Ritholtz’s “Big Picture” blog are familiar with his take-no-prisoners style and accurate predictions in the financial crisis.

A cover image of the book Bailout Nation is seen in a handout photo. REUTERS/Handout

Now Ritholtz brings the same flare to “Bailout Nation” ($24.95, Wiley), a chronicle of what he describes as a descent from rugged individualism to corporate dependence on government handouts.

“The first modest government interventions and legislative fixes soon changed to far more insidious corporate welfare,” Ritholtz writes. “The cumulative effect has been a creeping paternalism, rife with moral hazard.”

While his vision of the 19th century may seem overly rose-tinted, he makes a convincing case why big money and politics do not — or should not — mix.

For example, he calculates that, even when adjusted for inflation, the cost of current bailouts surpass the combined price tag of the Marshall Plan, the Louisiana Purchase, the race to the moon, the S&L crisis, the Korean War, the New Deal, the second Gulf War, the Vietnam War, NASA and World War II.

Another gem is his contention that Fed Chairman Ben Bernanke has studied the Great Depression too literally, using the following “fun trick”:

Take any Depression-era railroad lending legislation, and place it into a document. Then substitute the words “home mortgages” for “railroad bonds.”

“You very nearly end up with ... the Troubled Asset Relief Program,” he writes, a reference to current bank bailout legislation.

He also draws a distinction between the rescues of times past, where families and individuals received help to survive circumstances beyond their control, and the current wave of bailouts.

“Here is a neat reversal of roles: Business leaders in the 1930s strongly objected to the government oversight and regulation that came with taxpayer largess,” he writes. “In the modern era, it is the taxpayers who are objecting, while business leaders take private jets to Congress to go on bended knee and request bailout bucks.”

By recognizing the failures of financial deregulation and highly-selective rescue plans, Ritholtz lays the groundwork for possible solutions.

For these, he relies on colleagues such as hedge fund manager Doug Kass and former Merrill Lynch economist David Rosenberg for advice that includes a more direct effort to help struggling state and local governments.

His line of argument suggests he would also favor a major overhaul of the U.S. system of campaign finance. He never quite goes there in the book, however, leaving that subject, perhaps, for his blog (www.ritholtz.com/blog).

Reporting by Pedro Nicolaci da Costa; Editing by Eddie Evans

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