In the post yesterday I made a comment to the effect that “we as a country seem to be playing a never-ending game of musical chairs deciding who takes the loss.” That has been my gut financial feeling for a long time. My guess is that is the core of the anger over things like TARP and just anything that shares the word “bailout”. That is because someone with authority decided that “those folks” will not take the loss. And of course those folks were the already rich and powerful. The powerful politicians stuck the bill with the taxpayers and paid out their buddies. They will get theirs when their political career winds down or they will get it back-door when their wife gets a cream-puff director job or a hot tip on some land. That has been my thought for a long time, but I never saw that expressed by anyone else. Until now. Here is David Wessel – WSJ columnist on “why crises persist”.
It’s been five years since the U.S. housing bubble burst. Housing remains among the biggest reasons the U.S. economy is doing so poorly.
On both continents, there is no longer any doubt about the severity of the threat or the urgent need for better policies. Yet the players seem spectacularly unable to act.
What’s taking so long?
Deciding who will get stuck with the tab.
This is exactly why “stimulus” might seem to be compassionate, but it leads to more problems, and why this guy, Andrew Mellon, has long been an interesting figure to me (I was a financial geek for a long time). Mellon famously said “work the rot out”. Part of work the rot out was liquidating harshly any bad banks. By that he meant prices need to fall and the faster the better, and the best things a government can do in a downturn is uphold the law and liquidate failed stuff as fast as possible. What you can take that as instead of prolonging the game of musical chairs as a political problem, play the game as hot potato. Politics is a game of fairness defined by the mob. A political solution usually is found where just over 50% decide “this is fair”. (Of course that means just under 50% could be getting whacked). To move it to the political realm is to ignore the law or re-write the winners and losers. To Mellon, finance is completely a game of law. The mob is never really fair. The rich and powerful win it, or the whole place is turned to ruins…every time. The law is or should be impartial. Andrew Mellon would have bankrupted and liquidated his mother. And that is to be praised. That is the impartiality of the law. Under fair laws we are all equal, even if those laws aren’t perfect we know what they are. That is a first use or civil use of the law. The Hebrew prophets weigh in on that civil use. Micah 6:11 is an example, rhetorically – “Shall I acquit the man with wicked scales and a bag of deceitful weights?” Also check out Lev 19:36, Deut 25:13, Prov 16:11, Prov 20:10, and Prov 20:23. I could list more. And we think God doesn’t say anything about this, heh. Our problem is that bad weights have already been used.
That first use or civil use can point to a second use of the law. It should dawn on us looking at the effects that we all will be caught with a hot potato sometime. We all will have a debt that we can’t pay. Quoting another economist – in the long run we are all dead. Governments are institutions of the law. But with God we hear the Gospel. The law would liquidate us. In Christ we find a new law…a law of grace. A king who can forgive 10,000 talents.
Update: Here is my favorite financial journalist, Megan McArdle on the folly of fairness. I guess what you could say is that she wishes we would apply grace now instead of the law. But to apply grace means you trust the person with the scepter or that you apply grace abundantly. Jubilee. The Lord who knows hearts. Think anyone would go for a wholesale debt forgiveness? Trust the US government to judiciously forgive? Didn’t think so. Even Israel never applied a jubilee year. Institutions of the law apply that law. That is why they have the sword – a terrible swift sword.