Friday, March 21, 2008

In the woods with Bear Stearns

marjorie says...

I love the way the words "socialized" and "socialism" are being bandied about regarding the Wall Street Bail-Out by the Fed. As if those words are bad things. Well, I guess they kind of are if they're only used to benefit the richest among us, as the NYT editorializes today:

The ongoing bailout of the financial system by the Federal Reserve underscores the extent to which financial barons socialize the costs of private bets gone bad. Not a week goes by that the Fed doesn’t inaugurate a new way to provide liquidity — meaning money — to the financial system.

Compared to the cold shoulder given to struggling homeowners, the cash and attention lavished by the government on the nation’s financial titans provides telling insight into the priorities of the Bush administration.

The NYT goes on to describe the current system as "lopsided" in a way that encourages risk on the part of bankers by ensuring that they ultimately won't lose everything, and calls for "fundamental correctives" to curb financier's excesses. I couldn't agree more.

Some people think we should let Bear Stearns go under as a lesson to all the others who play the game of financial roulette. I can feel the sentiment, but the fact is that since what we have is a capitalist system the possible domino effect of such a collapse is potentially greater than the lesson.

Instead we need much deeper regulation and oversight. The big question is whether or not this lesson is learned. And, of course, we have yet to see if this is over. The unfortunate reality is that while most of us don't get to vacation with the big boys, we certainly get to check out the woods with them, don't we?