• bailout rhetoric
• market rhetoric

A Republican friend sent me this piece from Time magazine that argues for letting "the poorly managed, overly risk-taking financial institutions fail!"

This friend forwarded this along and compared the current discussion about the bailout to discussions about The Patriot Act. That is, if you are against the bailout, you hate America and you want the economy to collapse. I think this is exactly what is happening, and as much as I don't like the reasons for dissent ("you're being partisan"..."no, YOU'RE being partisan") I'm happy to see dissent. I don't know what the answer is, and I'm uncomfortable with the "let them fail" rhetoric because it seems to oversimplify things. What about the collateral damage? What about the people that will suffer because of the failure of such banks...people who didn't necessarily take any risks or make any bad decisions?

The Time opinion piece does offer a way for the government to step in that does not involve handing over a trillion dollars to failing banks:

The government should not intervene. It should leave overleveraged financial institutions to default on their derivatives obligations and, if necessary, file for bankruptcy. Much of the crisis has arisen from miscalculating the risks involved in a large book of positions in these derivatives. It is only logical that these institutions pay for their poor management.

Rather than bailing out Wall Street, we propose that the government should buy up the actual mortgages in question and do nothing else. The government should not touch any derivatives; that is, claims that do not directly tie into the actual mortgages. If money becomes too tight, then the Fed can certainly increase its loans to financial institutions.

This sounds reasonable to me, but I am certainly not an expert. At the very least, I see some hope in the fact that there's some kind of conversation going on right now. The typical reaction to trauma is to sew things up and fix things quickly. The current debate in Congress is not going quickly, and that means that we sit in uncertainty. But it also means that there's actual discussion happening...something that we did not see when The Patriot Act was rubber stamped.

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