It’s a Rig

The NYT turns in a great piece on the growing disconnect between those who borrow and those who lend.  In the midst of the ARM mortgage crisis, as family after family succumbs to the convulsions in the marketplace and as one bank and investment firm after another gets a free bailout from the same taxpayers, the difference couldn’t be more stark:

Fair Game – Borrowers and Bankers – A Great Divide – NYTimes.com

The message in this disconnect couldn’t be clearer. Borrowers should shoulder the consequences of signing loan documents they didn’t understand, but with punishing terms that quickly made the loans unaffordable. But for executives and directors of the big companies who financed these loans, who grew wealthy while the getting was good, the taxpayer is coming to the rescue.

To be sure, bailouts are becoming increasingly necessary in our highly leveraged, interconnected financial world. One obvious reason that huge companies are not allowed to fail is that so many people are hurt by such debacles. If a family files for bankruptcy or loses a home, the pain still hurts, but its emotional and financial ripples are confined.

And of course, that’s the game: we can’t survive without the banks, so for our own well-being, we need to work against our immediate interest.  It’s all a rig.

But even more important to the rigged game is the notion of “free markets,” which as the article points out, are only expected to be free to the extent that they’re doing well.  Once the shit hits the fan, well, then the government is expected to come in and regulate lest the economy collapse.  The most important point in the article is here:

Fair Game, Cont’d:

HERE is a question: Might not the routs, which inevitably follow the manias, be less painful if things were not allowed to get wild and crazy on the upside? Might not the American people be better off with regulators who curb market enthusiasm — whether in the form of errant lending or voracious, ill-considered deal making — when it reaches manic levels, to protect against the free fall, and the bailouts, that ensue?

No, no, no — perish the thought, especially when the taxpayer is there to pick up the bill.

And that, my friends, is the point.  The supposedly liberal position of regulating trade is not about us wanting to control and tax every little thing.  It’s about the fact that our government is a public square in which those of us not running large corporations get a say in how our country is run.  The banks will be just fine, no matter what; we know that.  The government is supposed to be there to make sure the rest of us don’t get left holding the bag.