INVESTING: Government bailouts are only making matters worse

There is a change in the air, and I am not talking about that chill you feel when you walk out in the morning to get your paper.

This change I am thinking of is even worse than the chill that signals the end of summer. The federal government of the United States just nationalized two of the largest mortgage companies in the world-Fannie Mae and Freddie Mac.

On the morning of Sept. 6, when I heard about the move, I thought maybe this time the world would come to its senses and punish our government for layering on another several trillion dollars of debt.

Then I quickly snapped out of my ridiculous state and remembered that instant gratification is no longer a unique American demand. We have successfully exported that culture to investors all over the world. Of course markets would rally on the news. Who cares if we just saddled my children with an additional financial burden with no plan to pay it back? We made the market go up for a little while. That’s all that matters.

As we continue to grind through this bear market, there is one thing I want you to keep in the front of your mind: The largest losses will occur at the end of the move. This year is littered with examples of why that will be.

Early this year, when the markets were getting hammered, experts told us things couldn’t get much worse because of the amount of cash U.S. corporations were holding. That cash proved elusive. Companies quickly burned through it absorbing rising fuel costs instead of passing those costs on to their customers.

In early March, when the markets were getting crushed again, those same experts told us things can’t get much worse because of the incredible growth of emerging markets. Since then, investors have been buried under mountains of losses in countries ranging from China to Poland.

In July, as the Dow plunged to yet another low, the experts were at it again, this time yelling about how we would all be saved by the tech stocks. Don’t look now, but your tech portfolio is battered. Each time one of these predictions fails to come around, another believer drops out and sells. Eventually, a few turn into a lot, then a lot turn into a herd.

The stories always sound so believable, too. This time, it is our government coming to the rescue of everything and anything to bring the markets back. The experts are telling us that pretty soon mortgage rates will drop as global investors gain confidence in our government’s ability to fix the mess. What will happen in two months, when rates are still heading higher? You guessed it, another brick from the foundation of desperation gets knocked out.

Our government now has spent billions of dollars bailing out companies that should have been left to their own devices. And the largesse isn’t just mortgage-related. We gave Ford and GM $50 billion in loans that they’ll most likely never pay back.

The biggest mistake people are making now is thinking the bailouts will save the markets this time. They’re convinced we are now out of the woods. I contend that these moves will only delay the inevitable by weeks, not years. If your strategy is to hope the government fixes the mess, it’s time for you to do a review.