From CNN: "Congressional leaders said Friday that they were determined to quickly pass a massive plan to stabilize the financial market after they heard a "sobering" assessment from the administration's economic team...."
Lovely. A more regulated financial market--predictable but scary. I really worry about losing our free market. We're so close to completely uncompetitive now. Did you know we graduate one-tenth of the scientists as China? You might think that's okay, given that we're one-quarter the size, but interestingly, we graduate exactly the same number of lawyers as China does scientists and engineers. I think that's a sign that we are increasingly unable to produce things.
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Of course, in China they probably don't have as many criminal defense attorneys. They probably don't use lawyers to get divorced. China's also a totalitarian regime. So, folks who challenge government action. Here's something from WikiAnswers. (I don't think its that controversial to worry about the source.)
People per Lawyer
US: 265
Brazil: 326
New Zealand: 391
Spain Lawyers: 395
Italy Lawyers: 488
UK: 401
Germany: 593
France: 1,403
France is a civil law, rather than common law, nation. I don't know about the others.
I don't really see a correlation.
Heart of your point, that we are too regulated, why doesn't the current crisis challenge this thesis? It seems to the uninitiated that these exotic securities based in large part on exotic mortgages suggest the need for more regulation.
Tell me where I'm wrong?
(And, I mean that. After 9/11 lots of folks said it was time to take away our civil liberties, and then did, but I was against it.)
I echo Jim. On one hand, you are upset about the bail out, and I understand that. There are obvious metaphors like if you build a house out of rotten lumber, propping it up will only help so long. Eventually you have to cut out the rotten part and start over, or the whole thing eventually collapses. I get that.
But you are against regulation that makes it harder to get into that situation. It is amazing how predictable it is that otherwise intelligent people will ignore reality for the dream of easy money. Not Joe guy, but everyone, including the Harvard MBA's running these finance companies. That's giving them benefit of the doubt that they screwed up, rather than being crooks. In the face of that kind of apparently built in human weakness, isn't it a good idea to build safe guards into the system to combat a KNOWN negative tendency? If not, why?
Well... I think you two are conflating regulation with bail out.
I am not against all regulation. I certainly wouldn't advocate as much as we're going to get... access to affordable private loans is vital for maintaining a healthy flow of cash around an economy. But regulation is important.
The bail out is what I fear so much. I think in my email I said a "more regulated financial market" and while I don't want a more regulated financial market, I think the real problem our children will face as fallout from this crisis is that 50-60% of the mortgages in this country will be held by the government. Allowing institutions and people suffer from making and taking bad loans imposes fiscal discipline on both sides, which is better than allowing people to go crazy and then catching them when they fall.
Exotic financial tools will be invented no matter how you regulate the market, and sometimes they are vital, absolutely vital. Over regulation will stifle the creativity we need to do that. But taking away the consequences of default, you effectively make borrowing money free. When money is free, it has no value. Please read that, take it in, and understand it. If the dollar has no value, the United States will become Russia, a failed economy that is only relevant because we have big guns.
"When the people find they can vote themselves money, that will herald the end of the republic." Quote by Benjamin Franklin who was much, much smarter than you and me.
To summarize more succinctly, to run an economy we need to take a long view. And saving institutions, and especially by the government holding massive amounts of mortgages, you are taking a short view. Short views kill economies. And as much as I understand liberals' desire to be kind to suffering home owners, you're doing more damage to greater numbers of people if you save bad borrowers and bad lenders.
I don't think I'm confusing regulation with bailout. In this post what you expressed worry about was regulation. The idea of the regulation is to make it less likely to be in this kind of situation where bailouts might happen. Since you have expressed such worry about the bailout, I wonder why your stated worry here about regulation isn't counter to your concern about bailouts.
I assume your answer would be that regulation would not help prevent financial melt downs, so we'd get the downsides of regulation without real protection in return.
Matt -- I quite agree with you. (Though I do think the original post was confusing -- the follow-up made your thoughts pretty clear.)
I am not an economics expert, but it seems to me that the options suck either way. If we allow Big Shitpile to implode, that does preserve the risk/reward relationship that keeps some semblance of rationality in the system. OTOH, the consequence will be the evaporation of a trillion dollars of equity in the serial bankruptcies that ensue: No small matter, that.
But if we give Paulson his blank check for $1.2 Trillion (!) and just nationalize Big Shitpile, it rewards the reckless behavior that created this problem and places a staggering burden on the already-bankrupt federal government.
I'm in the camp of "don't reward kleptocracy," with the added benefit of "tough love." But it's dizzying how quickly the CW in DC switched from "no bailout for crooks" to "here's a blank check."
I am so far from an expert on finance and economics that I don't feel confident having an opinion, but I'm coming around to the no bailout argument. Either way, there are some lean days ahead. Stashing cash in the mattress, anyone?
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