The Fire Next Time
Here's the best analogy I can offer. Suppose a guy down the street has been smoking in bed for the last 20 years. That's a stupid, irresponsible thing to do, and lots of people have told him so.
He just happens to live next to another idiot who stores containers of gasoline in his garage. He, too, ought to be fully aware that this is a foolish thing to do.
Predictably enough, the guy smoking in bed starts a fire that explodes in force when it hits the gasoline-filled garage next door. Now there's a hell of a blaze going on. If these two guys lived alone in a remote area of rural Montana, we wouldn't have much to discuss. But they don't. Instead, the fire is spreading down their residential suburban street, burning houses where nobody smokes in bed or keeps gasoline in the garage.
Damage Control
That's about where we are right now with the financial crisis. The question isn't whether we should rush to save the morons responsible and put ourselves at risk in the process. We shouldn't. The question is whether we should intervene to save the rest of the neighborhood. We should.
The fire department may end up helping our smoker and gas-can man just because it's an unavoidable part of fighting the larger fire. That's unfortunate, but it's not a good reason to call off the fire department. I don't get enough utility out of standing amid the smoldering ruins of their houses to justify the risk that the same thing may happen to my house a few hours later.
If you want to fine these guys, or put them in jail, or take away what's left of their property -- fine. That seems perfectly appropriate. But just make sure you take care of the fire first, because that's what's dangerous here.
2 comments:
I went home today with this analogy in mind, and told it to my dad. He got mad and said "well you know carla? her brother is a multi-billionare because he buys corporations that are about to go down, fixes them, and then sells them for a profit. Why can't they do that for companies like AIG?" and I just sat there kinda confused with no comment. Why can't they do this? Is it because in the short run it would hit the economy pretty hard? Or because it would be impossible to fix something that big? I was thinking it was the second question, but didn't say anything. I want to give my dad an explanation but can't really think of one to give him. Your thoughts?
First, I am not trying to start family turmoil. I agree that a private solution such as your dad suggested would have been better. The government decided that they needed to take action in this case for three reasons. First, it was felt that something needed to be done immediately and only the government was able to put a deal together fast enough. Second, only the government would be able to scrape together the huge amounts of money necessary to do the deal. Third, AIG was in trouble because they were insuring alot of these troubled mortgage backed securities, if they failed the problem would be even worse. I generally shudder at these kind of government rescues, but Paulson and Bernanke are very smart free market economists and they have better information than the rest of us - if they think it is necessary I have to trust their knowledge and wisdom.
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