My article yesterday got a big response, most of it positive. Several emails accused me of being a comfortable rich person who doesn’t give a damn about poor people. Several, who apparently can’t read my bio, accused me of being some ivory tower academic. Today, the WSJ, supposed bastion of free markets, takes a similar tack:
Safe in their think-tanks, some of our friends have claimed that talk of a financial crash is merely a political invention. Perhaps we’ll now test their theory. A financial panic isn’t an academic seminar, and a flight from all risk isn’t something any free-marketeer should want. A recession now seems certain, as falling commodity prices are telling us, but the point is to prevent systemic financial collapse. Maybe the Members who voted “no” figure at least they’d still have jobs.
It is a dark day for capitalism when the WSJ endorses a massive government intervention. A think tank resident has a response at the NRO Corner:
Safe in my think-tank, as the Wall Street Journal puts it (although my personal banker would laugh at the idea), I am bemused by the number of people who are saying that we have to “do something” about the financial mess. As Andy’s correspondent below points out, “do something” is rarely a recipe for success.Let’s look at the main issue for many here: the credit squeeze. As Jeff Miron says today, that is overblown and is in part *caused* by all the bailout talk:Thoughtful advocates of the bailout … argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.
Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.
Further, the current credit freeze is likely due to Wall Street’s hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.
Of course, these are reasonably sensible people responding to stimuli and signals from government. And of course, that’s what got us into this mess in the first place.
Now as it happens there are lots of things we can do which do actually rise to the level of “doing something,” but which don’t involve giving bureaucrats the keys to the kingdom (incidentally, this is statism, not socialism — socialism at least purportedly wants to redistribute wealth for the benefit of the working man, which the Paulson plan does not aim to do, even if some House members on the left would like a bailout to do so).
The administration can reform mark-to-market accounting, we can break up and privatize the GSEs, we can reform certain insurance practices such as requiring lenders, not borrowers, to pay for PMI. We can abolish the bank/thrift divide and reform the CRA. There may be a case for some sort of structural stability office in the Treasury as a least-worst option, but we’re still thinking that through. Oh, and the President can fire Henry Paulson, whose over-the-top reaction turned a big but manageable problem into an international crisis.
I recognize this will be a minority view here, but consider this. Paulson is one of the people who thinks we should “do something” about global warming as well. Funnily enough, his preferred solution is cap-and-trade, an artificial, government-created market with no underlying value whose main beneficiaries will be Wall Street at the expense of the average American. This amounts to a pattern of behavior, I suggest.