15 September 2008
One Black Monday: The Blame Game
The stock market suffered its worst day since 1987 today as the leading index fell more than 500 points in value. This was the result of a rush to sell out provoked by the bankruptcy of Lehman Brothers and the sale of Merrill Lynch to the Bank of America. These events are blamed on the subprime mortgage crisis. Who is to blame for that? Liberals blame predatory lending, accusing lenders of enticing people to go into debt beyond their ability to pay so they, the lenders, could make a quick buck by selling the debt to other parties. Conservatives blame people borrowing beyond their means, insisting that the system itself remains fundamentally sound. Looking past ideology, we should admit that it takes two to tango. The temptations became too great for lenders and borrowers alike. That's how a "bubble" works. We've seen them before and, given human nature, we'll probably see them again. It hasn't helped that the post-Depression regulatory apparatus has been taken apart gradually over the last thirty years. Democrats and Republicans are complicit in this. Both sides erred on the side of economic liberty, risking the country's economic health on the hope that people would act as rationally as ideologues of liberty predict. Whether there will be long-term consequences remains to be seen. Whether anyone will have learned a lesson from the experience is also open to question. The ideologues will not because they prefer blaming individuals to abandoning theories. The politicians will not because the voters must be flattered, and so someone must be deemed innocent and scapegoats found guilty. The voters, of course, will have the politicians and ideologues as well as the facts to deal with. I don't like their chances.