Cadillac likes to pick on me and instigated another fight. This time he asked me to defend Ayn Rand style deregulation in light of the times. Here goes.
Every individual is responsible for their personal livelihood. The strong prosper, the weak fail. Government must stand aside for the will of its people.
I am not only responsible for myself but also for where I place my money. If I choose to place my money with an entity that is irresponsible and that entity subsequently fails, I deserve to fail with it because I am the bank’s regulator.
Come again, you say? I’m saying banks can’t fail unless we give them money and then turn a blind eye to where it's going. If my bank begins lending a neighbor money at 14 times his salary to buy a house, I should be asking hard questions or moving my money.
Some banks saw the fiscal irresponsibility of the housing bubble and largely eschewed such poor lending practices (Wells Fargo). Those good banks should benefit from relatively prudent money management while the spendthrifts (Bank of America, Citi) should fail along with all who supported them. (www.ajc.com/business/content/printedition/2008/08/22/wellsfargo.html)
Individuals are responsible for regulating banks through collective scrutiny and common sense not tainted by "irrational exhuberance" followed by "helicopter drops" of cash (...thanks Alan, Ben).
And a “bailout” in any form would be facially offensive to Rand. Why? Well, what are we doing with the bailout money right now? Are we supporting the good banks like Wells Fargo so that the banking system arises anew through strength, not greed and irresponsibility? Of course not, let's instead support the weakest, most irresponsible (Bank of America, Citi) so they can buy their friends at Merrill Lynch and we can have a fresh crisis all over again in a few decades.
I believe Ayn Rand would say irresponsible lending practices, not only by banks to individuals, but more importantly by individuals to banks, caused the current crisis. The irresponsible entities on both sides should simply fail permitting better banks in our country to rise strongly and facilitate a more lasting economic recovery where true regulation is guided by citizens, strength, and common sense and not by a lobbyist-infested government. --Schlitz
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In full disclosure, I'm a long term Bank of America customer...so pot, meet kettle. Incidently, less than a year ago, Paul introduced to a book called "Good to Great" that discussed in great detail the prudent management of Wells Fargo and what makes a bank great versus what gets a bank in trouble. If we as individual citizens pay attention, the clues are out there.
I agree wholeheartedly with the idea that a truly free market will find its own balance. That said, it is a grave mistake to assume that we deal in a truly free market. The Federal Reserve, governments, lobbyists, the corrupt (often one in the same as the previously listed), and others play a huge part in manipulating the market to their interests. Is it any coincidence that politicians and businessmen run in the same circles? Is it any coincidence that the Federal Reserve was founded and operates as a quasi-government agency with no real oversight from the public or the government? The answers to those two questions are no and no. The American economy and world economies aren't free markets and as a result can't be relied upon to act like truly free markets.
In a truly free market, you'd expect companies like AIG, GM, and Bank of America to crumble because they simply aren't viable businesses. Instead, the government sees fit to prop up these businesses with money that the free market isn't willing to because they are afraid at what might happen if a free market were truly allowed to run its course. This is often a case where it is a politician bailing out friends and former co-workers. In many ways, it is a shame, but in other ways, it might be for the best. Why do I say that, you ask? Well, it's because the general population has proven time and time again that it is pretty dumb.
Why are there some many foreclosures? It's simple, in most cases you had an idiot or greedy person in charge of writing the loan and an idiot receiving it. Sounds harsh, I know, but in most cases it is true. As Sly mentioned in the original post, people were financing homes, cars and other purchases at astronomical rates which simple math would have told them they couldn't afford. The same goes for the banks making these loans... why didn't common sense tell some of these loan officers that making a loan to somebody without a job, without sufficient income or with other similar loans in their name already was probably a bad idea? Easy, they were either greedy and wanted the commissions or were too stupid to understand simple individual and business economics. As the old saying goes, "it takes two to tango." The bankruptcy laws were put in place with the intention to promote people to take risks on ideas or investments they believed in. If they weren't there, we may never have seen many of the inventions and businesses we do today. That said, we probably also never have seen the people who live WAY beyond their means either... at least in the concentrations we currently see.
That's where a truly free market may have intervened. Were there any accountability on behalf of the individual, the lender or the employee making the loan, most of these loans might not have happen, or they would have at least been stopped sooner because they wouldn't have been viable business practices. When the option of wiping your hands of your debts whether it be through walking away from a house, car, etc. or filing bankruptcy, collecting huge salaries and bonuses for writing large numbers of loans without any consideration to the quality, or having Uncle Sam there to foot the bill with the money of those who were responsible, nothing is going to change.
The best thing intelligent people can do is figure out that the system is screwed up and probably won't ever operate in a way that makes sense, then use that as the ballpark in which you've been given to play. At that point, you can tailor your game to the rules and the environment. You'll be the pitcher that knows what the batter can and can't hit and you'll have the aresenal of pitches to throw to that batter. Sure, that batter might get a game winning hit from time to time even when they probably shouldn't, but over the course of a season you'll win more than you'll lose. Beyond all that,you'll be light years ahead of the spectator who just sits on the sidelines lamenting about how things could and should be done better or different.
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