“What if we just left well enough alone and let the economy do its thing?”
Saturday, September 20, 2008
Our government, which does not have a particularly good record for handling the economy, and whose policies almost certainly facilitated, in not outright contributed to the current housing and financial sector crises, is suddenly operating at warp speed on the assumption that we are teetering on the verge of the second Great Depression. I’m not exaggerating or jumping to conclusions. That’s what they’re telling us, but where are the signs of this pending financial Armageddon?
Keep in mind, our government’s bailout plan is coming from the same officials who didn’t see this crisis coming, but who are now in a panic to stop it. This isn’t studied management. It’s a knee-jerk, “Yikes!” reaction. If they were oblivious enough to have missed it or even contributed to it, why should we have any confidence in their ability to fix it? My overwhelming sense is that our government, at least in so far as the economy is concerned, is being run by people who have no idea what they’re doing.
Has it been too easy for too many people to buy homes? Sure. Have certain Wall Street firms gone nuts doing overly leveraged, high risk business that never should have been funded? Absolutely. Are there large numbers of innocent people who will suffer as a result of these Wall Street indiscretions who we need to help? Definitely. So, other than helping the innocents, what if we did nothing? On what basis are we getting ready to spend, by all accounts, between $500 billion and $1 trillion to save investment banking firms which clearly haven’t behaved in a way that justifies their continued existence? What if we just left well enough alone and let the economy do its thing?
At the risk of sounding like John McCain – not that there would be anything wrong with that – except for subprime mortgages, their implications for the housing sector and, most importantly, their relationship to our nation’s largest investment banking firms, the fundamentals of our economy are holding. The banking system, far from hanging on by a thread, continues to do business and is adjusting its behavior with remarkable speed. Two of our largest banks are swallowing up two of our largest investment banking firms – and doing it without government assistance. Bank of America has purchased Merrill Lynch. Wachovia is negotiating to acquire Morgan Stanley. Lehman Brothers has just been sold to Barclay’s Bank – again, without government assistance. If we can just get the government to procrastinate a few more months, the economy may resolve the current financial crisis on its own.
In the meantime, the availability of subprime mortgages is evaporating from the housing market. Families who shouldn’t have been able to buy houses will have to rent. Others will have to buy more modest homes. People’s expectations will have to be downsized, but then they were obviously out of line with reality, so they need to adjust. So there will be less personal and business credit available, at rates which more accurately reflect the risks which lenders are taking. Who knows, American’s might actually start reducing the extent of their personal debt in favor of saving. You remember savings? Maybe you don’t, but it’s a good idea, sort of like having an extra bottle of water or frozen Lean Cuisine dinner in your freezer, just in case. The point is, making adjustments is what a fundamentally strong, mostly free market economy does periodically to fix itself.
I just don’t see it. The stock market isn’t real. It’s a speculative market. Real is the way our domestic car manufacturers have failed to innovate. Real is our over-dependence upon foreign oil. Real is a struggling education system that is having trouble producing the work force we need for this generation, let alone the next one. Real is a lack of competitiveness in international markets. Real is our government’s inability to live within a reasonable budget – and these are the people we’re trusting to cure excess on Wall Street?
Let’s help the innocent who will be hurt by the failure of the Wall Street giants, but we need to demand that Washington calm down and prove that we really are on the verge of the next Great Depression before their actions put us into one – only to have them look back, retrospectively, and argue, “See, I told you so.”
If we’re hell bent on spending $500 billion to $1 trillion, there’s got to be something better we can do with it.