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TO BAIL OR NOT TO BAIL?

September 23, 2008

I think Megan McArdle gets it about right on the bailout:

The right wing version says "Let them fail! Fractional reserve banking is inherently unstable, and we've been living on borrowed money. We need to cut back to our natural, credit-free level of output and consumption."

The left wing version says "Let them fail! Capitalism is inherently unstable; greed is no way to run an economy. We need to force banks to stop doing all of these dangerous things and regulate them so heavily they can't make a mistake. Also, as a general rule, rich people should suffer for their mistakes, and ordinary people shouldn't. This is a great opportunity to repeat FDR's awesome victories!"

These are two ways of being dangerously silly. Whatever your ideal looks like, there are two rules of financial system change:

1) Very rapid change is very bad
2) See above.

There are a lot of things that worry me about giving the Treasury Secretary $700 billion. The idea that the economy will stop, that otherwise healthy companies like GE will go into bankruptcy because the commercial paper markets shut down, and the like, worries me even more. And there isn't a lot of time to fiddle with the details or to weigh it down with stupid populist ornamentation.

Related:

REVERSE AUCTION TIME?

THE $700,000 SHOPPING SPREE

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