Show Wall Street some tough love

Remember the old story "If You Give a Mouse a Cookie…He Is Going to Want a Glass of Milk-" Well, the story serves as an interesting analogy to how the government is handling the current crises in the housing and financial markets.

In studying the application of economics to policy, one of the first terms learned is "moral hazard." Simply put, moral hazard is the idea of helping someone out who has done something wrong so that they do not have to realize the full consequences of a bad decision they have made, with the result that the person will be more likely to commit again the wrong action that necessitated the bailout in the first place. I am sure this sounds familiar to anyone who has had to raise children - or a dog, for that matter.

The government from Congress to the Federal Reserve is creating moral hazard with its bailouts of the people who created the current economic mess. The prime example for this is the Federal Reserve's role in the outcome of Bear Stearns's downfall. The Fed provided emergency loans to Bear Stearns after it pretty much ran out of cash due to losses on risky practices.

The Fed helped broker the deal to save Bear Stearns, which was going to have to file bankruptcy. Most would say the Fed did so in an effort to prevent the collapse of our financial system.

But what type of example does that set- Bear Stearns made risky investments, with borrowed money, and even with educated, experienced people at the helm their risky decisions did not pan out.

Think about if your kid went and took his lunch money and spent it on the arcade game where the claw tries to pick up stuffed animals, but unfortunately he was unable to get one and wasted all of his lunch money. Well, you have two choices. Either give him more money so he can eat or let him reap what he has sown and learn his lesson.

The Federal Reserve chose to do the first one. How can you ever expect financial institutions to straighten up if they get bailed out when facing bankruptcy-

Believe me, everyone on Wall Street rejoiced after the shock factor was gone from the Bear Stearns deal because the precedent had been set - the Fed will bail out the big institutions as opposed to letting them go toe up.

Don't believe me- Then tell me why the stock market rallied recently- It's because Wall Street knows there is a bottom, the Fed won't let the big guys go under.

The boom-and-bust cycle of the economy is well known. Maybe the reason for the boom and bust is the fact the government stops institutions from ever facing the true consequences of their actions. The Federal Reserve gave Wall Street a cookie the other week. Chances are a few years from now Wall Street will want a glass of milk.

Business columnist Worth Richardson can be reached at .