Wednesday, September 24, 2008

Freedom to Fail

I have some thoughts on the current economic 'crisis' and the US government response.

The causes of the boat we are all in are myriad, but one thing is clear to me: going back to the late 70's, I can find instances of the government interfering in the market, and the majority of that interference (from making mortgages 'easier' to get to Sarbaines Oxley) has had a net negative effect. Certainly not the only issue, but part of the problem.

The solution, in my opinion, is NOT a bailout. People must have the freedom to fail. Failure helps set prices, and helps the market learn from mistakes. Bailing out companies and individuals who made poor choices will harm everyone long term, given there is no incentive to make a good choice in the future.

My wife put it very well to me last night over a glass of very good inexpensive Pinot Noir. For some context, it was 8pm and we were sitting down to eat. I had just returned home after being gone for 12 hours - I had an all day meeting in Philadelphia, left my house a little before 8am, got home at 8pm, because that is what successful people do. She had been working all day to build her business. She said: "I am a little tired of all of it. We make smart choices, we work hard to take care of ourselves, and we are always the ones everyone comes to for a bailout."

It's so true.

We further discussed that this isn't about not helping people who can't help themselves, or people who get down on their luck through things that are out of their control. Heck, I'm willing to help people who make dumb choices and end up destitute. I don't want anyone to be hungry, I want everyone to have a nice place to live, a car, to be able to enjoy all the things I enjoy. I'm better off if they do, because they will be buying the things my wife and I work to produce or provide. But if you can't make the payment on your $1 Million dollar house because you got an ARM and make $150K a year, you need to suffer the consequences. And if you are the bank who made that loan, you need to suffer the consequences. Otherwise, you'll do it again.

Paulson said he understands taxpayers aren't going to be happy about footing the bill, but the government bailout will be less painful than the alternative recession. I'm not convinced that's the case. We don't know what's going to happen, and we certainly have history on our side thinking the government plan will fail. Glenn Beck said yesterday: "A failed Administration, a failed Congress coming up with a plan to fix a failing market... this can't fail!"

Trust the calm people. If you just hang in there, everything will work out OK. We all need things, we all can produce things other people need, there is no way a free market system can collapse. It may change, but we'll all make it.

Unfortunately, we must do something, even if it's the wrong something.

No comments: