Wednesday, March 26, 2008

The market does not correct itself

Let's get that out of the way: markets do not fix corruption or bad ideas on their own. "The invisible hand" that moves the market from Adam Smith's words does one thing: decide the value of an item in the here and now.

It doesn't care about future consequences. The invisible hand doesn't care about environmental impact, doesn't care about the health of people, doesn't care that its actions might fall because somebody decided that their greed lets them make a really, really stupid decision.

And then, then that stupidity catches up with them, have institutions that caused the situation (like the current sub-prime mess) beg for a "bail out because we're too big to fail".

Mr. Drier has a very long, but very detailed post on the economics of the current financial meltdown, and what to do about it. Yes, it calls that if you're a bank or lending institution that wants a bail out, you're going to have to accept some regulation. Sorry, but that's the cost of taxpayers saving your butts: you have to agree to some oversight, so the next time you think that making bad loans is a good idea because someone else is going to save you, there will be someone say "Uh - no."

There's a lot to chew on in his post, but I highly recommend going through it all. And pass it along to others - maybe this can pervade the consciousness of people and our leaders. It's a plan similar to what helped us get out of the Depression, and kept us economically strong for many decades afterwards.

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