Osler's Razor

I realize that I have been a little heavy with political and economic diatribes of late, but I really can't stop myself on this one.

The Federal Reserve, with the support of the Bush Administration, has bailed out Bear Stearns, one of the most reckless finance houses, which got up to its eyeballs in bad home loan debt. Bear Stearns isn't a traditional bank (though it is involved in investment banking). However, it was able to get involved in traditional banking functions because the financial industries were deregulated.

I'm ok with deregulation. I think it often has good effects, and is based in sound principles. However, those principles involve letting markets work-- that is, letting companies die, even when that causes some dislocation.

I'm also ok with bailouts. Sometimes, key players in given industries need government assistant to survive, and the government can be well-positioned to make those calls.

What I'm not ok with is having both deregulation and bailouts. Bailouts counteract the market forces we are supposed to be trusting with deregulation. They can make sense, but only if we accept the principle of government intervention in markets at opportune times, which is also going to mean... appropriate regulation.

Behind all this is my sneaking suspicion that this administration is ok with deregulation and free trade where it harms individuals, but can't stomach sticking with markets when those markets turn on corporations and rich people. Letting things sort out through free markets hurts the weak players in those markets. We should hold the same principles whether those players are individuals or corporations.