A disaster, but a necessary one to clean out the rot that remains in the financial system. As noted here, Lehman was bigger than Bear Stearns was at the time of Bear’s bailout and the fact that the Treasury Department has said “no” to further bailouts–even though Lehman is a larger player–is heartening, because it means that the financial crisis will be allowed to burn itself out instead of relying on artificial government prop-ups that will only serve to bring about moral hazards galore in the long run.
None of this is painless, of course. But a government bailout would have only served to prolong the pain–and at taxpayer expense, to boot.
Of course, this problem now has a political dimension to it, with Barack Obama claiming that this situation is directly the result of Republican economic policies and that it represents the worst fix since the Great Depression. Of course, one strains to figure out how it is possible that the Bush Administration can be responsible for the fact that various investment banks decided to try to get a piece of the subprime mortgage pie, but under the leadership of the “reality-based community,” we are supposed to believe that the government has the power to influence private sector investments–or that it should. Amusing. On the “Great Depression” point, perhaps Obama has forgotten the Carter years, when inflation, unemployment and interest rates were in double digits. But then, since every Republican President is accused of being a latter-day Herbert Hoover–really, don’t they have a macro for this accusation by now?–this latter non-substantive talking point should come as no surprise whatsoever.
Moe Lane
Neil Stevens
Daniel Horowitz
Steve Maley
Capitalism thrives on "destructive creation"
Adjoran (Diary) Tuesday, September 16th at 2:22AM EST (link)The wasteful, foolish, and inefficient are destroyed by the markets without respect to their size or history. From the surviving pieces, smarter people build greater things.
Thus has it always been, and thus it should always be. Government “bailouts” nearly always mean subsidizing inefficiency and failure, diverting scarce resources (through confiscation by taxation) from their best and highest use.
So far as is known, none of the principals of Lehmann, Merrill, Washington Mutual, AIG, or other threatened/failed financial institutions have committed any crime under the law, but they all committed grievous offenses against the marketplace by supposing they could assume greater risks without . . . greater risk.
They lost. Their losses will stand as a warning to others, and their remaining assets will be absorbed by more enterprising concerns (at a delicious discount against their intrinsic value, naturally).
The taxpayer has no dog in this fight. The markets will sort themselves out in short order, as they always do if left unencumbered by government. The resulting financial industry will be leaner, meaner, and better prepared to facillitate future growth than any artificially propped-up version could hope to be.
A truism of investing is that when the market reaches a consensus, it is always wrong. The events of recents days and weeks in the financial sector are actually very positive signals.
Questions for the Dems
JamesLBurns (Diary) Tuesday, September 16th at 6:04AM EST (link)A few questions for the Dems who wish to blame this on Bush:
1) Can you point to any speech or position paper from Obama prior to the mortgage market collapse that highlighted the risks present in the mortgage market?
2) Can you point to any speech or position paper by any other democrat prior to the mortgage market collapse that highlighted the risks present in the mortgage market?
3) Can you point to any bill pushed by Senator Dodd, as Chair of the Senate Banking Committee, that you assert would have prevented the mortgage market collapse?
4) Even after the fact, what change in the law do you assert would have prevented the mortgage market collapse?
Why Do You Ask the Democrats for Facts?
Strelnikov (Diary) Tuesday, September 16th at 6:39AM EST (link)It is always so embarrassing…for them!
I suppose you want to ask Harry Reid or Biden about the “lost war” in Iraq now! Or you want to ask John Edwards about “family values” ! Or you want Billy Jeff Clinton to give you the facts about when sexual activity is sexual activity! Or the facts about the word “is”.
Or maybe you want Big Brobama to give you the facts about William Ayers and Rev. Wright! Or the facts about why he often votes “present” instead of swallowing his castor oil and taking a stand!
Like the parent of a teenager, YOU are just SO UNFAIR!
As of November 4, 2008, the Code Words will be: “Klaatu – Borada – Nikto!”
Part of the cycle of business
MikeWas (Diary) Tuesday, September 16th at 7:06AM EST (link)Individual failures are a sign that the system is working as intended. Bad business decisions or flawed business models lead to failure: the culling of the weak.
What are the odds that any “reform,” proposed by either party, does more harm than good? I figure something around 5 to 1.