What FEMA and the Fed Have in Common
I was in the National Press Club lobby this afternoon when the news broke that the House had failed to pass the bail-out package. I sat there staring at the wall of TV monitors with a group of stunned reporters, no one sure what to do next. One screen showed the Congressional vote tally going up; the one next to it showed the Dow going down, down, down.
Despite the sense of foreboding in my office here in DC, I am still not convinced the bail-out package was the right response. The whole thing reminds me too much of how we deal with other disasters in this country: we encourage people to take enormous risks by, say, living without meaningfully priced insurance in places like Florida, and then we bail (some of) them out with disaster relief after catastrophe strikes.
I don’t pretend to have the solution, but I am struck by the question posed by Luigi Zingales, an economist at the University of Chicago:
Do we want to live in a system where profits are private, but losses are socialized? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalized and prudent behavior rewarded?
The question is, can we hold people responsible for reckless behavior while not penalizing the rest of the country at the same time? Can we have accountability without a depression?
Carl Lindh said on September 29, 2008 at 11:22 pm
California Congressman Darrell Issa sounds like he really understands the economic problem. Please interview him to find out if he is knowledgeable, or if he is just talk.
Henry Murphy said on October 01, 2008 at 10:31 am
You say, “The question is, can we hold people responsible for reckless behavior while not penalizing the rest of the country at the same time?”
No. You can’t. We deal with this everyday in other areas. Do you drive a car? If someone runs a light and causes you harm, do we not hold them responsible for their reckless behavior?” Does this stop you from getting hurt? No. Of course not.
We drive our cars knowing the risk. If we don’t like the risk we can choose not to drive. This country is built on “travel”, especially here in Texas and other large states. We can’t live without it. Sometimes we don’t live because of it. The point is, sometimes other peoples behavior harms us.
In our never ending effort to protect ourselves from the womb to the tomb, this is just ONE of the things that we will have to add to the list. See how long this list can get?
Also, since the ‘Great Depression’ produced the ‘Greatest Generation’, what are we worried about. Our parents and grandparents saved the world and put men on the moon because they had to build their own toys figure out a way to make things work with limited resources...NOT because their parents were able to get a credit card and buy them all the video games and potato chips they wanted.
Al Capital said on October 05, 2008 at 10:43 pm
The “unthinkable” in this case is a nation with no working credit system and an economy that may implode to GDP levels comparable to the 1940s. We have faith that we are protected individually, but no understanding of the economic system. The moves to shore up the financial system are required but not sufficient, and unrelated to questions of private profit and social loss. Your economist is asking you should send the (taxpayer funded) fire department to a burning hotel, after all the hotel’s profits are private. That point of view is absurd.
ObiJohn said on November 22, 2008 at 10:42 am
The problem with your economist is that we already live in such a world. Those who work, and succeed, are being forced to pay for those who don’t work, and those who fail. Whether it’s subsidizing ER care for gangsters, supporting children born out of wedlock, or bailing out banks who bought risky and speculative investments… this is the world we live in. The problem isn’t that we don’t have enough regulation, it is that we have too much stupid regulation and not enough effective regulation. Case in point: the financial rules that forced many banks into technical insolvency because their ratio of debt to capital fell below an arbitrary line. This rule exacerbated the credit crisis. What would have happened instead, if the banks had been able to work with delinquent homeowners, and settled for interest-only payments and reducing the interest to a point where it was affordable for the homeowner?
We have created a world where it’s cheaper to make things overseas than here in America, and we wonder why manufacturing jobs are disappearing. We have passed laws that force automakers into making cars that no one wants to buy, that force them to pay people munificent salaries for not working, and we wonder why the Big Three are effectively bankrupt. We pass laws that require banks to lend money to people that cannot afford to pay that money back, and we wonder why these people default on their loans and the banks are struggling.
In short, the people who have been running things have created an environment that supports failure, punishes success, and establishes a playing field that cripples the economy. They got the outcome they designed.