" This one might be called the Irresponsible Forest Owner. If I live in the forest together with my neighbor and he is very careless about fireHe goes on with some more observations but this captures the essence of the problem in a very understandable way. - what is my response when he sets fire to his property? My instincts are "You need to live and learn from your own mistakes. If your house burns to the ground, perhaps you will be more careful next time. This is the natural consequence of your actions."
But then I watch the fire getting ready to spread into the rest of the forest including my property and so I reluctantly go to his rescue. I am angry, I have violated my principles of self responsibility but my only other choice was to watch the entire forest go up in flames.
I sense the great majority of Americans are against the bail-out. But I also sense that the great majority of Americans don't believe that the "fire" has any possibility of spreading to them.
So ultimately it gets down to whether a person believes credit will dry up because of the fear created by this sleazy affair. Let me relate a conversation I had the other day with our local banker who chaired my advisory committee. He said simply--people are pulling their money out and taking it home. He is a profitable bank but now he is less liquid and less able to meet his legal requirements. He doesn't want to but now he cannot make as many future loans and is starting to call in current loans. Did the far away fire on Wall Street spread to his property simply through fear?
We all share this vast economic forest which has grown over the centuries until it covers the earth. As it has grown, certain fire breaks, barriers, and supports were added to help stop the spread of dangerous conflagrations. Recently, there has been a lot of tinkering with these safety mechanisms. Some of this has been necessitated by new technologies like computers and instant communications. Some is a desire to "increase efficiency." Much of it is just old fashioned greed. Most of this tinkering appears to be random and inconsistent. The more I read about it, the more I had a strange sense of De Ja Vu.
In the early days of commercial television, there was a self taught engineer by the name of Earl Muntz who was the first to offer a TV for under $100. He did this by using a technique that is now called Muntzing. He would take a standard, working TV and start clipping out components until it stopped working. He would put that component back in and move on to another section, and keep this up until nothing else could be removed. He would then make copies of that TV and sell them for budget prices. His televisions were cheap, but they were also unstable, insensitive, and had a hard time lasting to the end of the warranty. All those components put in there to keep the TV working as components aged or the voltage varied had been removed, so Muntz's sets were frequently operating on the verge of failure. Because everything was operating right on the edge, when something broke in a Muntz TV, lots of components went out and the TV was not worth repairing.
We have been Muntzing the economy for decades. Pull a regulation here. Change an accounting requirement there. Favor a special interest over there. Muntz the interest rates. Muntz the reserve requirements. Muntz business models. Muntz the risk analysis. Clip and tweak economic components hither and yon until something breaks and maybe put that back. This random, uncoordinated, poorly planned tinkering has left us with with a system that is always on the edge of being unstable.
We have been lucky. Economies are remarkably self correcting over the long term. That is unless someone is in there Muntzing them.