I commented on my favorite federal circuit justice’s most recent blog entry. The full text of my comment, approval pending:
I do not believe that a loan to Lehman brothers would have prevented its failure or helped to stave off the current financial crisis. Expanding the Federal Reserve Bank’s authority so that it needed no security for a large loan would have been disastrous: its assets, like those of many of the banks and “banks” which have been begging for economic sustenance at the government table, had grossly inflated values and would not have been sufficient security for a private institution of the same scope as the Fed itself.
The banks and their policies aren’t per se systemic risks; it’s the economic superstructure by which all the banks together chased after a speculative gambit with the assurance that, by linking together with all the other gamblers and spreading their risks across the top of the entire economy, they’re “too big to fail.” The system itself is the risk, and the sooner it comes apart, the better.
If Lehman didn’t have assets to cover its risks, it’s right that Lehman failed. Michael Martin above calls for a more comprehensive system of information feedback, but this system is already built into the economy. Failures fail and successes succeed. This has and will continue to bring about gigantic losses in the economy, but it’s only because a tall tree, propped up by governmental supports, was allowed to grow at a 45 degree angle from the ground and is finally too heavy for any federal support to hold it up. It will fall down one way or another, and any band-aid solutions are bound to fail in the long run, and thereby only cause more economic harm and loss.
Any top-down, governmental interference is necessarily arbitrary and contrary to the natural progression of the economy. Your honor, we need more economic minds to see this truth and argue for the market to be allowed to do its job: to take the money out of the gamblers’ hands so that economic resources may be redistributed to more productive enterprises. Perhaps in the short term the market disaster appears to be a failure of capitalism. I ask that you broaden your perspective and see it as a correction of an unhealthy economic attitude which has grown like a cancer on the American mindset over the span of decades.