Wednesday, March 11, 2009

But none dared call it nationalization 

The demands to modify mortgages or forestall evictions are especially onerous, some bank executives and experts say, because they could prompt some institutions to take steps that could lead to greater losses.

�We are taking an approach that wants the banks to help the economy and whether it is ultimately good for a particular bank is secondary,� said L. William Seidman, the former senior regulator during the savings and loan bailout. �Weak banks are being asked to do things that will erode their position.�
Of course the article goes on to say no, this isn't really nationalization at all. The banks are being looked out for, the government says. But if you think of property rights as a bundle of sticks, sure looks like many sticks are coming out of the bunch.

I spent a while this afternoon -- school's out for the week, I have a little peace and quiet around my usually noisy office today -- re-reading Hayek's Nobel Prize lecture, The Pretense of Knowledge. I am struck by this part towards its conclusion:
To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm. In the physical sciences there may be little objection to trying to do the impossible; one might even feel that one ought not to discourage the over-confident because their experiments may after all produce some new insights. But in the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority. Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims. We are only beginning to understand on how subtle a communication system the functioning of an advanced industrial society is based - a communications system which we call the market and which turns out to be a more efficient mechanism for digesting dispersed information than any that man has deliberately designed.
You have probably heard a number of people questioning how it is that we can solve a debt problem in the United States by adding to our debt with scads of government spending. But there's a better analogy here. The financial system's failures are the product of developing new ways for banks to communicate with each other through new instruments, ones that connected new traders together in a way that was meant to overcome autarky. "What we had here was a failure to communicate," you might say. So what does this financial policy of the new government do, if not to assume it can rebuild a new communication system for banks? After Fred and Fan fail because they were told to invest in mortgages to increase homeownership while staying profitable (those aren't always sympathetic goals), they are now being told to help refinance mortgages where borrowers have zero equity (even 5% underwater.)

It's an administration run by a fellow with a hubris surplus, and that disease is all the more dangerous, the more power one has.

While Secretary Geithner is filling his Treasury, he should hand a copy of Hayek's speech to each of the applicants ... and one to his boss.