South Carolina Governor: No Bailout For Me, Please
South Carolina Governor Mark Sanford had an interesting column in the Wall Street Journal of the weekend in which he asked the federal government not to bailout his state. But what he has to say about the community bankers in his region to illustrate his point about bailing out fiscally irresponsible states is more interesting to me:
Community bankers tell me that they are now at a competitive disadvantage for being careful about who to lend to, because others that were less disciplined will get a federal bailout. This is also true for states. Those that have been fiscally responsible will pay for or lose out to the big spenders. California increased spending 95% over the past 10 years (federal spending went up 71% over the same period). To bail out California now seems unfair to fiscally prudent states.
Community banks are at a disadvantage because they acted responsibly. National banks that acted recklessly (because they expected a bailout) are continuing to behave recklessly. Because far from fixing the problem, the bailout just maintained the status quo.
Government bailouts - whether they be for irresponsible borrowers, irresponsible bankers or are even just welfare for people who won’t get a job - promotes irresponsible and risky behavior.
