Saturday, March 29, 2008

On Inmates and Asylums

The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.
Don't for a second imagine that this is a good thing. Free markets work best when market forces are allowed to act. When the housing bubble was expanding out of control, there were no calls to stop the gains. People raked it in hand over fist. But now that its popped, all anyone wants to do is stop the losses.


The very act of trying to minimize these losses will result in the eventual destruction of the system. You can't have a market that only expands. Contraction is necessary. Vital, even.

You know what it is called when something just grows and grows out of control? It's called cancer. And the housing bubble cancer has metasticized into the global economy. Do you think that preventing it from shrinking is going to help the host organism? Absolutely not. Instead, it is more likely to speed its demise.

I don't understand why this is so complicated. People...

1) used money they didn't have
2) to buy things they couldn't afford and now they
3) can't pay for it.

How is anyone surprised by this?

Protecting people from the consequences of bad behavior only encourages more bad behavior. The only way to make things better is to let people suffer the consequences of their actions regardless.

Evolution is a hell of a theory, and survival of the fittest is a hell of a sieve. If we just let these forces work in the market, the people that got us into this mess would get eliminated and those that remained would be wiser and stronger as a result.