Because the overall state of the financial markets is just as pervasive (and sometimes perverse) a factor influencing virtually everything in modern life, kind of like energy, in fact, I think it’s worth front-paging a little discussion of it even on this site.

For those who haven’t noticed, the US federal government is in the process of creating a new entity to buy up much of the bad debt created by the mortgage crisis here in the US. This is a dramatic and very expensive step that has a strong and recent parallel in the Resolution Trust Corporation that was formed to help deal with the savings and loan crisis in the late 1980’s/early 1990’s.

Of course, the biggest single debating point involves the old “moral hazard” argument. Why should the government bail out private enterprises? Isn’t fear of failure one of the primary forces that drives companies to innovate and succeed? Yes, it is, but I think those endless complaints that we’re “socializing failure and privatizing profits” miss the point. The issue is not whether a huge and expensive step, such as the one being cooked up as I type this by government regulators and representatives, is desirable; I can’t imagine anyone with more than three gray cells to rub together actually liking this solution. And it’s not a question of who was to blame, although I certain have some pyrotechnic comments on that issue, as you frequent TCOE readers might imagine. The only issue that matters is: What’s the best thing to do at this point in time for the entire country? Right now, I think that creating a roughly RTC-like entity to gently unwind this mess is the right solution. It’s not pretty or fun or in any way “good”, but it is optimal, given the situation on September 19, 2008.

Can this be massive rescue effort be screwed up? Absolutely. And with the immense amount of money sloshing around and the track record of spectacularly bad decisions that got us into this mess in the first place, it’s not hard to predict that we’ll make some painful mistakes in the coming months and years.

This is why I think it’s a particularly good time to say: If you have a better solution, one that hurts fewer innocent people, saves more of the institutions we want saved, and, above all else, avoids triggering a national or even international depression, then belly up to the keyboard and tell the world. E-mail or call the US regulators and lawmakers. Contact the media. In other words, get involved and fight. Wailing about how you look at this proposed fix and worry about your kids’ future, as one guy on CNBC said yesterday, without proposing any meaningful alternative, is just ideologically driven garbage.

We see the same phenomenon many times every day with peak oil and global warming–lots of people telling us that either there’s no problem at all, let “the magic market” handle everything–the same underregulated market that created the savings and loan mess, the colossal disaster known as Enron, and the current financial conflagration–or that everything is so bad there’s nothing we can do except stockpile food and learn how to make sewing needles out of rat ribs. Honestly, the refusal of people to learn from prior mistakes as well as successes (Y2k, anyone?) is truly breathtaking.

A few links to worthwhile stories:



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