Robert Reich examines the twisted logic of bailing out financial institutions that are "too big to fail:"
The reason they're too big to fail is they've borrowed so much from me and from you -- from our pension funds and money-market funds -- that if they went bust, our savings would disappear. Even the danger of them going bust might make us so anxious we'd demand our money, which would close down the entire financial system.
The reason they've been able to borrow so much from us without putting up much of their own capital is they're unregulated, and don't have to put up their own money. Hank Paulson's new ideas won't change this one bit. He just rearranges the regulatory boxes.
The tax code also rewards them for borrowing rather than investing, by letting them deduct interest payments on the money they borrow. Wall Street is leveraged to the hilt in part because the Street has got a fat tax break for taking on debt.
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--The Editors
