On Fairness

Well - it's hard to look at the whole bail out thing and not talk your own book. I don't like the idea of an additional 25% or more decline in equity values. I don't like the idea that home prices need to fall more. I own that stuff.

But I do question the fairness of supporting decisions that should not have been made. I find the housing side is more tangible than the finance side so I'll make my point (again) relative to housing.

If a meaningful portion of the populace has been "overborrowing" to purchase houses, they cause prices for those houses to be higher than they otherwise would be. They also cause house building efforts to go in a particular direction (maybe big, fancy houses). If this is sustainable - so be it. If it fundamentally is not, then the fair thing with regard to those people who had previously been priced out of a particular market is to let prices fall. The priority of "keeping people in their homes" expressed by politicians the last few years has always seemed strange to me - because keeping person A in their home necessarily means keeping person B out, right? So fair would seem to be keeping the rules constant. It is rough for the status quo but it is good for some people - they just aren't as visible.

The situation would seem similar in the financial markets. I'm sure there are other people who would like to have the business opportunities currently held by potentially failing entities. By propping up a given entity, we deny new entrants an opportunity they may otherwise have had.
(I will grant that the possibility that the destruction of the organizations that had previously provided capital could - would likely - have a negative net welfare effect on the populace. It would take many years for the system to rebuild.)


It's interesting to think about what exactly fiat money (or even gold) actually is (a store of value). I will save that for a later post since I have to go now.