Constant Conservative

Roger Kimball has an excellent article which takes up precisely this question:

Step back for a moment from the question of whether the trillion-dollar “bailout” is a good idea. I admit to having grave doubts about it, especially when we saw a three-page document mushroom into a 451-page pork sandwich (honey glazed with sweeteners) at the hands of the Senate yesterday. But leave that to one side. Perhaps this expensive effort at first aid–or is it life-saving CPR?–was justified, though if it is time, if it is a little breathing space for companies with “distressed” balances sheets, that was needed, why not begin be relaxing the “mark to market” accounting rules that have just enacted one of the most spectacular financial disappearing tricks in the the history of money? An asset that was worth a $1 billion yesterday is not worth $0 today, and to pretend that it is just because there is not a buyer right now, today, is an example of financial pedantry if not financial terrorism.
[snip]

The current pandemonium on the Wall Streets of the world is not due to a failure of the free market. It is due to a failure to observe the rules of the free market. In The Wealth of Nations, Adam Smith noted the paradox, or seeming paradox, of capitalism: that the more individuals were left free to follow their own ends, the more their activities were “led by an invisible hand to promote” ends that aided the common good. Private pursuits conduced to public goods: that is the beneficent alchemy of capitalism. Friedrich Hayek’s fundamental insight, enlarging Smith’s thought, is that the spontaneous order created and maintained by competitive market forces leads to greater prosperity than a planned economy. But in recent years the “invisible hand” that adjudicates among competing interests to produce the most efficient channels of economic growth has increasingly been replaced by the heavy hand of government-sponsored social engineering. One especially onerous one is in the form of the Community Reinvestment Act, which, in its fully-developed, post-1995 form, was a gigantic wrench tossed into the engine of capitalism that stymied the orderly evaluation and pricing of risk. It’s one thing to give Chris Dodd or Barack Obama a sweetheart mortgage for favors rendered. It’s quite another to force banks to issue more than $1 trillion of risky mortgages to people with bad, or no, credit history and then prop them up with taxpayer guarantees through the agency of entities like Fannie Mae and Freddy Mac.

Right on Roger, right on. Go read the rest of it.

In other news of a working free market, it was announced this morning the Citigroup (which had the backing of my dollars via the FDIC) lost out to Wells Fargo in a bid to address Wachovia’s mounting insolvency. In fact, Citigroup was only going to purchase part of Wachovia, thereby breaking up the bank. Wells Fargo, on the other hand, wants Wachovia to stay in one piece.

Somehow, I think Adam Smith would approve.