From today’s Washington Examiner editorial:
“There are credible alternatives to the Bush administration’s bailout approach. Economist Brian Westbury, for example, suggests allowing troubled firms to erect an accounting firewall around at-risk assets created between December 2003 and August 2007 by segregating them from the rest of their balance sheets and then holding those assets to maturity. The government’s main role would be in providing insurance for the sequestered assets instead of buying them outright. By comparison, the Bush bailout looks like a bum’s rush for economic freedom.”
CEI’s VP of Policy Wayne Crews agrees. “This is just the right approach. Not every asset is a problem, there needs to be a separation between good and bad, limit governments involvement to correcting past errors, and have a path forward for every mortgage granted starting tomorrow. There should be no government role beyond cleaning up a strictly circumcribed mess.”
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Well, there is some progress here as far as the Free Marketers retreating from their original claims this mess was 'caused by government' to one of where the government has merely 'contributed' to the problem.
The debate here is being argued on two levels. On one level, there is the strategic question of how to best deal with the mess. On this front, good points are being made, but everyone here is largely acting as armchair quarterbacks, myself included. Everyone needs to admit we don't have sufficient information to presume which strategy is better than another. Believe me, I don't want to have to pay for Wall Street's mistake any more than the next guy; I'm just not certain that the temporary emotional satisfaction that would come from letting this thing collapse is worth it to me in the long run.
The more relevant debate is over whether or not Wall Street has any ability to police itself. And it shouldn't be a debate, as all the proof is before us, and there is no shades of gray behind the answer. Honest to God, how can anyone, after this long, long run of serial trainwrecks, still believe this particular marketplace - Wall Street - has the willingness or ability to fix itself? Truly, I'm fascinated by the fact that seemingly smart people - people who have the cognitive skills to write well - have lose their ability to reason this one through. If this marketplace could fix itself, wouldn't it have been done a long, long time ago? Still, we are fed explanations of how self-correction is just around the corner, or how some arcane regulatory rule keeps a fix just out of reach.
Follow-up: I read Westbury's article, and as far as armchair quarterbacking goes, it makes good sense. He acknowledges the validity of mark-to-market accounting as a general rule, which is what I was struggling with from other commentators. Others seemed to be saying this was inappropriate accounting when it is actually quite the opposite under normal circumstances.
Westbury does point out, though, that we are talking about extraordinary times, and if the sky is truly falling, why not 'fence off' those assets, and treat them differently in order to preserve marketplace liquidity?
But it still doesn't change who caused the problem in the first place.