Financial Bailout

If congress had not played with the market using Fannie and Freddie to support policy the country would be better off today. The present situation in the credit market is a good example of what happens when efficient systems are left alone. Our highly efficient and extremely fluid capital market took advantage of the gamed system to speed the flow of money into sub-prime and low interest refinancing by highly motivated Wall Street players. The credit default market is not regulated per se and left to seek its own level developed into a $60 trillion asset base without even a single trading platform. Talk about efficiency. If the policy to replace jobs lost to foreign territories had not combined with the policy to throw money at America in the guise of affordable housing we would not be here today with a market melt down. New regulation will not prevent the inventiveness of an efficient market which will find the inevitable regulatory arbitrage to any solution congress will provide. Congress has a long history of putting reactionary band aids on the wounds it opens. This will leave gaps to be exploited and result in a another spiral to be fixed later.

The best policy is to leave the markets to do what they do best and keep artificial regulatory arbitrage opportunities to a minimum. This is painful but better than a series of crashes that will inevitably result from too much intervention. That is unless we do not want to be a free market any more and adopt some type of socialist system going forward.