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China wants U.S. money; the rights and wrongs of bailouts

One of our readers pointed out that China Investment Corp "has applied to participate in the U.S. Treasury's temporary guarantee program for money-market funds." The reader also pointed to commentary by George Mason University's Judith Apter Klinghoffer on the story:

If anyone sane is still minding the store at treasury, they will decline the application. It should not be the business of the American taxpayers to save private individuals from their investment mistakes. It is certainly not the business of the American taxpayers to save foreign states from their investment mistakes. Nor is impossible to exaggerate the damage such a precedent would set.

This argument is both right and wrong.

It's right because, to be fair, CIC really has no business applying for Treasury money just because it took a hit on Blackstone's IPO a year or so ago (which is basically how the Chinese are thinking). Times are hard. We've all taken a hit. So what?
But it's wrong on a bigger level: namely, that it's somehow morally perverted to use taxpayer money to shore up the domestic economy in a time of crisis, and implicitly that the federal government has no business buying stakes in private businesses. If congress hadn't dithered for so long over this asinine issue, things might not have gotten quite so bad in the stock market last week.
In fact, given U.S. history, it's bizarre why anyone would suggest that government involvement in industry in times of crisis is somehow conflicting with the country's core principles. Probably the greatest financial invention of the last millennium - the U.S. treasury bond - was started by Alexander Hamilton, who intervened in the relative sovereignty of individual states by assuming their debts and repackaging them as the [then 6% interest] T-Bill. (Actually, Hamilton faced much the same moral objections to federal interference then as the one above).
We live in countries and have governments precisely because they are great insurance policies when things get bad. If you don't use the insurance claim however, what's the point of paying the premium?