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December 5, 2007

Dean Baker: Wall Street Welfare Wimps Keep Whining

Dean Baker says ignore the whining from mortgage market participants, what do you expect when people stand to lose millions?:

Wall Street Welfare Whimps Keep Whining, by Dean Baker: That should have been the headline of the NYT piece reporting that the Wall Street crew are complaining that the Fed has not done enough to help them out. These supposedly informed investors sunk trillions of dollars in mortgage debt that is going bad at a very rapid rate and they desperately want the government to bail them out.

The reporting should make clear what is going on here. People who earn tens and hundreds of millions of dollars a year because of their alleged skills are now facing a financial disaster. Rather than be willing to live with market outcomes, they are trying to use their political power to force the Fed and Congress to rescue them.

We shouldn't help people just because they whine, but just as importantly, we shouldn't refuse help just because it looks like we are giving in to the whiners. Thus, it will be important to make it clear that a rate cut or other interventions, if they were to occur, are to address general macroeconomic conditions and protect people who had nothing to do with bringing about the mortgage mess, not to bail out the mortgage industry in particular.

The Fed cannot do countercyclical policy without easing conditions, that's the only way to stimulate the economy, and when they ease conditions some businesses or investments that would have failed otherwise will be bailed out. But that doesn't mean we shouldn't help. If failure to act will cause an economic downturn that will harm the innocent, then I think the Fed should intervene to protect those who had no hand in causing the problems rather than harming the innocent as a by-product of ensuring that market participants are fully disciplined.

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