Let Wall Street Fail?
Let Wall Street Fail describes a plan that will not be tried, and maybe shouldn't be.
But how about an intermediate, pseudo-market approach? Have the government act on the market principle that money will be directed to those that do the best job. Use TARP's remaining $350 billion to keep things afloat for the next couple of months, but with fair warning that at the end of that time, the half of outfits that have done the best job of reforming and resuscitating themselves will get additional taxpayer support. The other half will be turned loose, and good luck to them. Is there any doubt we'd see a marked increase in seriousness and urgency among these firms? There's nothing like a competition for survival to focus the mind.
In contrast, the current approach talks loosely about trillions (!) in additional bail out money on the way, and everybody can look forward to getting whatever they need. In fact, the bigger mess you got yourself into, the more public money you'll get. With no apparent effort to direct the money only to the most deserving, these firms are not forced to be competitors to excel each other in a race to survive -- they've become allies in a cooperative woe-is-us lobbying effort to extract the maximum from the public purse. They're a team, and with enough trillions, it's a game they all can win.
This is all completely predictable. Given the policy framework they're operating in, these firms would be irrational to act in any other way. It's the badly conceived policy of non-contingent government largesse that's the problem. Instead, let's make taxpayer support depend on being in the top half by a date certain, and then stand back and let them fight it out.
Won't happen. But if there is a sensible policy principle in the current approach, I can't find it.
Byron
But how about an intermediate, pseudo-market approach? Have the government act on the market principle that money will be directed to those that do the best job. Use TARP's remaining $350 billion to keep things afloat for the next couple of months, but with fair warning that at the end of that time, the half of outfits that have done the best job of reforming and resuscitating themselves will get additional taxpayer support. The other half will be turned loose, and good luck to them. Is there any doubt we'd see a marked increase in seriousness and urgency among these firms? There's nothing like a competition for survival to focus the mind.
In contrast, the current approach talks loosely about trillions (!) in additional bail out money on the way, and everybody can look forward to getting whatever they need. In fact, the bigger mess you got yourself into, the more public money you'll get. With no apparent effort to direct the money only to the most deserving, these firms are not forced to be competitors to excel each other in a race to survive -- they've become allies in a cooperative woe-is-us lobbying effort to extract the maximum from the public purse. They're a team, and with enough trillions, it's a game they all can win.
This is all completely predictable. Given the policy framework they're operating in, these firms would be irrational to act in any other way. It's the badly conceived policy of non-contingent government largesse that's the problem. Instead, let's make taxpayer support depend on being in the top half by a date certain, and then stand back and let them fight it out.
Won't happen. But if there is a sensible policy principle in the current approach, I can't find it.
Byron
posted by Byron | Wednesday, February 11, 2009
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