Zywicki in LA Times: Survival of the Fittest
Controversial efforts toward government bailouts of financial institutions have drawn criticism, according to an article appearing in the Los Angeles Times in which Professor Todd Zywicki likens the failure of those institutions to "economic Darwinism."
"I have no problem with someone making a lot of money if they take risks and all goes well," Zywicki said. "The downside of that, however, is that they have to eat any losses," he continued, indicating that he did not believe government should be in the business of bailing out companies that, through misfortune or mismanagement, found themselves in trouble.
Government experts have argued that a proposed $700 billion bailout is necessary to save financial institutions saddled with mortgage debt problems and create more liquidity for banks to make loans, staving off increased economic damage to the consumer.
Bailout runs into a populist backlash, Los Angeles Times, September 24, 2008. By David Lazarus.
"In the absence of strong regulation, businesses can and will easily go astray amid their constant search for profit.
"'It's too easy to think that the market will take care of everything,' said Leon Panetta, director of the Panetta Institute for Public Policy at Cal State Monterey Bay and former Clinton White House chief of staff. 'That's how we've gotten into the crisis we face today.'
"Still, there is something inherently unfair about the nation's roughly 138 million taxpayers having to foot the bill for an industry's recklessness. No one told these guys to invest billions in ill-conceived mortgages, and they did so for no better purpose than to make themselves richer.
"Similarly, no one told thousands of home buyers to take out mortgages they had no hope of repaying. Why should the rest of us have to subsidize a rewriting of their terms so these knuckleheads can keep their homes?
"I know: The answer is that sometimes the greater good is served by sucking it up and doing what's best for society. And in this case, there's a strong case to be made that society benefits over the long run by helping Wall Street and distressed homeowners get back on their fiscal feet.
"That's not how Fed Up USA sees it, though. The group's website ( www.fedupusa.org) says taxpayers 'have been subjected to the biggest con job ever in this country.' Fed Up USA grew out of a financial blog called The Market Ticker (market-ticker.denninger.net), run by financial pundit Karl Denninger, who previously headed Chicago Internet service provider MCSNet. The blog hosts an online forum that claims 4,500 registered users.
"'The solution that Ben Bernanke and Henry Paulson have put forward is to flood the market with money,' Denninger told me. 'That's like giving a drunk a bottle of whiskey for what ails him.'"