Wednesday, September 10, 2008

Fannie Freddie Sammie

I didn't think of it but I couldn't have said it better.

I am a little perplexed by the common perception (media, public) that capitalism is somehow supposed to be painless.

I don't know enough (the scale of numbers is beyond grasp) to say that these firms, as others before, "had to be saved" or not.

But any time you mess with the principles of risk and reward, specifically how "you earn it", you get a few possible outcomes (1) you're setting bad precedents (2) you typically postpone the problem (for another generation) rather than solve it (3) it comes back to bite you in some other form, sometimes even worsened in magnitude.

The common refrain is that a gradual pain is better than a severe shock for the economy. I buy that. And I don't.

Oh, by the way, Warren bought it. I don't think the alternative (letting them collapse) was ever on the table. Just not possible.

Also, interesting article on Warren's concern with potentially more bank failures here.

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