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Fed moves leave the little guy stuck

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Kai Ryssdal: The Fed did its bit to help out the mortgage-induced credit crunch yesterday.

Today, federal housing regulators took their turn. They said Fannie Mae and Freddie Mac can dip a little deeper into the subprime pool. The two government-chartered loan companies will be allowed to buy up another $20 billion more in subprime mortgages.

Fannie and Freddie are the largest sources of housing finance in the country. And the general idea is that they’ll now be able to absorb loans other investors won’t touch. Commentator Robert Reich says that’s great — but it won’t do a thing for the little guy.

Robert Reich: A few weeks ago, the president justified his bare-bones plan to help out a few of the millions of homeowners who got caught in the sub-prime loan mess, explaining “it’s not government’s job to bail out… those who made the decision to buy a home they knew they could not afford.”

But yesterday, the Fed justified its rate cut by citing turmoil in financial markets as a threat to economic growth. Ben Bernanke, the Fed chief, says he’s determined to take whatever action is needed to “promote the orderly financing of markets.” Read: Bail-out the big lenders, credit rating agencies, financial intermediaries, hedge funds and all the well-paid executives behind them — because they’re simply too big to fail.

When it comes to risky behavior in the market, America has a double standard. Average workers and small businesses get clobbered for mistakes like borrowing too much money.

Yet the big guys with lots more information and experience evaluating risk are let off the hook. It’s not just the current subprime mess — think of the Chrysler bailout of 1979, the 1998 bailout of giant hedge fund Long-Term Capital Management, price supports for big agribusinesses facing market downturns.

CEOs who drive their company’s stock so low their boards eventually fire them get fancy goodbye gifts. Although Home Depot’s market valuation dropped 40 percent during Robert Nardelli’s reign, he left with a $210-million golden parachute.

But if you’re an average worker who gets canned from his job through no fault of your own, you probably won’t even get unemployment insurance. Fewer than 40 percent of job losers qualify these days.

Meantime, bankruptcy has become the standard way CEOs who screw up can wipe the slate clean and try again.

Donald Trump’s casino empire has gone into bankruptcy twice, while his personal fortune is protected behind a wall of limited liability. But an ordinary person in trouble can’t wipe the slate clean because a new law governing personal bankruptcy makes that route harder than ever.

The subprime mortgage saga is the same old story: The little guys get tough love, the big guys get forgiveness.

Kai Ryssdal: The latest book from Robert Reich is called Supercapitalism. He used to be the secretary of labor for President Clinton.

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