The other side of the freedom coin
Thursday, September 25th, 2008As of this writing, congressional leaders of both parties, both presidential candidates, and economic advisors are meeting in Washington to discuss the bailout plan W outlined in last night’s address to the nation.
The idea is that it will restore the financial system’s health quickly enough that the American taxpayer will realize a return on its outlay of $700 billion. Sounds good, but also quite iffy.
It doesn’t look like a purely free-market solution to this is in the offing, since this catastrophe has its roots in a fuzzy melding of the public and private sectors. That said, I hope and pray there will be a camp within the assemblage meeting with W that will press for the way forward that comes the very closest possible to such a plan.
As every grown-up knows, the other side of the freedom coin is responsibility. Underneath the layers of bundled mortgages and deals and cleverly wrought instruments for growing wealth and government guarantees against failure lie actual exchanges of money for for promises to pay it back at a given interest rate. Someone said, “Yes, I’ll loan you this amount of money on terms involving this amount of time for paying it back at this rate of return,” and someone else saying, “Okay, is this the dotted line where I sign?” If either of them thought it unlikely that he or his organization could make good on what they were freely obligating themselves to, they’re not particularly wise individuals, are they?
Now, compound that by all the subsequent operators who saw home prices rising and said, “Hey, man, even if a lot of these loans are risky, bundling them together in this favorable market is a cool way to make some cheddar!” We have to presume that the folks on this level understood the degree of risk in what they were doing as well. Don’t we?
It looks to me like our culture’s zeal for ever-more slickly designed gizmos, with ever-more bells and whistles - think iphones and Blackberries and voice-activated GPS devices - permeated the financial world. The main difference, it seems to me, is that microchips and plastic and steel and aluminum aren’t inherently risky substances. You combine them into this product or that, and you can rely on them to do their thing as what they are. Mortgages and other loans, in contrast, may, shall we say, decay over time. They may fall prey to slow payment or even default. This makes designing super-fancy financial products out of them kind of a shaky proposition.
So what I hope gets trumpeted loudly at the gathering in Washington today is this: Let’s determine to the best of our ability who is responsible for each of the various aspects of this mess and hold them accountable as much as possible and minimize the burden to the American taxpayer, who needs to see his or her overall burden reduced anyway, as much as possible and as soon as possible. Free people keeping their own hard-earned money is the real key to moving pst this perilous moment.