Bailout Nation

Barry Ritholtz, author of the forthcoming book Bailout Nation, tells the Wall Street Journal that "if you believe in free market capitalism, you have to let people fail" because "capitalism without failure is like religion without sin." Ritholz provides a decent four-minute primer on what's wrong with Hank Paulson's hurried, $700 billion dollar bailout (which he plausibly estimates could balloon to $1.5 trillion) of Wall Street financial firms:

And as David Boaz notes, Newt Gingrich has only now realized that "We have now launched big-government Republicanism." Well, better late than never.

Comments

[Andy Craig]

I dunno, I'd say we could do just fine without religion or sin.

Analogy nitpicks aside, it goes without saying that he's right about failure being a necessary part of the free market.

[Naga Sadow]

What's with the late night posts? Not complaining as I'm usually up til 2 or 3. I suppose I should put in a comment about the topic though . . .

Gingrich is just now getting it?

[rhywun]

I agree. Tortured analogy.

[The Wine Commonsewer]

Those who feel guilty reading H&R at night plus the Hawaii contingent are likely happy to see late night posts that can actually be responded to instead of burning out by 2:00 PM EDT.

[The Wine Commonsewer]

Those who feel guilty reading H&R at night work plus the Hawaii contingent are likely happy to see late night posts that can actually be responded to instead of burning out by 2:00 PM EDT.

Fixed

[rhywun]

Not guilty at work here. It beats the usual jabbering with coworkers that everyone else does.

[Paul]

Forgive me if this was covered in Reason earlier, or talked about, but did anyone catch the near-miss magnitute 10 financial earthquake that the Fed nearly caused when they declared (by fiat) that all Mutual Funds would be FDIC insured?

Somehow I totally missed this, but I heard a story on NPR tonight where upon announcing that all mutual funds would be FDIC insured, leaders of several major banks called the Fed in a panic, instructing them that if mutual funds become FDIC insured, that they would cause a run on standard banks because no one would bother keep their savings in a bank for the comparitively low returns?

The Fed changed their policy on insuring mutual funds at the last minute, in the dark of night.

This is exactly the kind of thing that scares the crap out of me. They're literally just flailing around. They already tweaked their short-selling ban because it was screwing up the market.

But this mutual fund issue was a complete bombshell. They were literally teetering on the edge of creating a nation-wide banking collapse by causing all depositors to abandon tradtional bank accounts and throw them in mutual funds.

[Paul]

I wouldn't say tortured analogy.

On further thought, however, I would simply reverse it. Bailouts are like sin without religion.

[JMR]

These people like Gingrich must hate admitting Ron Paul was right...

[Naga Sadow]

TWC,

There's a Hawaii contingent?

[shecky]

I heard that story on npr, too, and I have to say, it's some truly scary shit. It's as if someone like me is in charge of monetary policy, making stuff up as they go along, because, of course, something has to be done.

[The Wine Commonsewer]

Naga, at least Prolefeed (in Hawaii). Maybe a couple of others. Coping with CRS: A mind is a terrible thing to waste. 😉

[Jeff P (paragon of sentience)]

As a being unstained by failure or sin, I have no problem with this analogy.

[Paul]

Wow, that's so weird, I'm only unstained by religion. Between the two of us, we could make our own church.

[rm2muv]

Setting aside that it would have been the fair thing to do, I find it asinine that mortgage holders did not forgive penalties and alter terms to allow people to stay in their homes, with interest rates they could afford rather than flood the market with forclosured houses with no hope of sale. How can this make sense?

A deal will certainly be struck to stabilize the market, but the whole thing could have been avoided through the judicious use of common sense and fairness. I only hope that anyone choosing to participate in the program is forced to severely limit CEO compensation and individuals facing forclosure are allowed to keep their homes under new terms with discounted valuations.

[prolefeed]

Naga Sadow | September 24, 2008, 1:20am | #
TWC,

There's a Hawaii contingent?

Besides me, there's Kolohe. Maybe others. Makes it tough to post when, by noon local time it's 6 pm Eastern Time all most of the threads are dead.

[Max]

Why is it that even though Bush is one of the least popular Presidents in history, the only opposition to his policies comes from Republicans?

The Dems repond to every Bush power grab with: yes, sir! It's pathetic.

[prolefeed]

Setting aside that it would have been the fair thing to do, I find it asinine that mortgage holders did not forgive penalties and alter terms to allow people to stay in their homes, with interest rates they could afford rather than flood the market with forclosured houses with no hope of sale. How can this make sense?

If they do it for the few percent of loans in default, and it becomes common knowledge, everyone else will try to renegotiate loan terms. And there's no such thing as a house "with no hope of sale". You can sell any house with the right (read: market) price.

I only hope that anyone choosing to participate in the program is forced to severely limit CEO compensation and individuals facing forclosure are allowed to keep their homes under new terms with discounted valuations.

The market difficulty was caused in part by people buying houses they can't afford. If you reward these folks by letting them stay in those houses they should never have bought instead of moving into something they can actually afford, you create a moral hazard, encourage future irresponsibility, and penalize prudent renters who didn't buy at inflated prices and are ready to purchase these houses at more realistic valuations.

[firma]

These people like Gingrich must hate admitting Ron Paul was right...

[bill]

@rm2muv

That's what the whole credit default swap problem is about. The mortgage holders thought they were insured against the loss of the loan because they had bought "insurance" by selling CDS's. If the loan goes bad they would be paid by the insurers so it was no skin off their back if it did. So the banks made tons of crappy loans, the insurers took on too much responsibilities and when the defaults started no one could cover the nut and the whole house of cards came tumbling down.

[Smunge]

If we have not now arrived at socialism, then one must question the very definition of socialism ... and just as only Nixon could go to China, could a so-called conservative Republican thrust us into the arms of the super-statist-socialist world.

[kwais]

firma | September 24, 2008, 3:21am | #

These people like Gingrich must hate admitting Ron Paul was right...

As long as he does admit that Paul was right, its cool.

[Episiarch]

Besides me, there's Kolohe. Maybe others. Makes it tough to post when, by noon local time it's 6 pm Eastern Time all most of the threads are dead

But you can just hang out with Rick and TC and go visit Icepick. Doesn't that make it all worthwhile?

[Tulpa]

"capitalism without failure is like religion without sin."

Evolution without extinction would be a better example...except that it would upset both fundies and greenies. There's no easy way to sugar coat the fact that in order to have winners you need to have losers (especially when you're talking to losers).

[PC]

"capitalism without failure is like religion without sin."

But what if that "failure" was completely "forgiven" by a superfluous act of "repentence"?

You know it is a jubilee year, "God" is just forgiving "God's" people.

[Pro Libertate]

Episiarch,

I'm posting from the guest house right now. I'm an old friend of Robin's.

[Episiarch]

ProL, give Zeus and Apollo a treat for me and don't forget to occasionally break the fourth wall.

[Pro Libertate]

Sorry, Episiarch, no can do. Zeus and Apollo are chasing Thomas down the beach right now. Damned shame, but Higgins and I are enjoying the quiet time, talking about our days with British Intelligence.

[ChicagoTom]

But you can just hang out with Rick and TC and go visit Icepick. Doesn't that make it all worthwhile?

Really? A Magnum PI reference? Nice!

[Pro Libertate]

I loved that show. It was like a soap opera for men.

[Episiarch]

I just wanted to let you all know that I am Robin Masters.

[Pro Libertate]

Oh, please. Robin Masters was Orson Welles. I'd know that voice anywhere.

Unless you are Orson Welles. In which case, I like a number of your films. When are you going to do Heart of Darkness?

[Episiarch]

Right after I get back together with Rita Hayworth.

[Pro Libertate]

Oh, well, fair enough. What about acting? Loved you in The Third Man!

I'm going to go drink some Paul Masson in honor of your work.

[Larry Edelstein]

Religion isn't much without sin, yes. But it also supplies a way to forgiveness. The analogy still holds; what's great about the US is the ability for people to take risks, lose, and still survive.

[John C. Randolph]

Gingrich must hate admitting Ron Paul was right

Gingrich can go to hell. He had a chance to return the Republican party to its platform, and he sold out for a power grab. FUCK HIM.

-jcr

[SpeakingFreely]

G.W. Bush, State of the Union, January 2008:

"In the work ahead, we must be guided by the philosophy that made our nation great. As Americans, we believe in the power of individuals to determine their destiny and shape the course of history. We believe that the most reliable guide for our country is the collective wisdom of ordinary citizens. And so in all we do, we must trust in the ability of free peoples to make wise decisions, and empower them to improve their lives for their futures.
To build a prosperous future, we must trust people with their own money and empower them to grow our economy."

So much for "the philosophy that made our nation great".