I was even willing to let this confused blather slip by unaddressed:

America is not just a country but an idea, a great idea about opportunity for all and responsibility to your fellow man.

Bono is referring to some recent remarks by President Obama and trying, by definition futilely, to justify his absurd, outrageous and offensive winning of the Nobel Peace Prize. Whatever — generally speaking, I only value musicians' opinions when they're discussing music.

But a few minutes later I came across a blogpost praising some other thoughts about "America as an idea" — also in the context of a Nobel Prize:

[I]t is all too apparent that financial obligations associated with social entitlements intended to solve welfare problems and advance public welfare threaten the viability of basic monetary and financial institutions. In my judgment, American democracy is at risk. Why has a flood of crises inundated the United States of America and other democracies in the contemporary world?

Perhaps the answer is to be found in the superficial way we think about citizenship in democratic societies. How people conduct themselves as they directly relate to one another in the ordinary exigencies of life is much more fundamental to a democratic way of life than the principle of "one person, one vote, majority rule." Person-to-person, citizen-to-citizen relationships are what life in democratic society is all about. Democratic ways of life turn on self-organizing and self-governing capabilities rather than presuming that something called "the Government" governs.

That is Vincent Ostrom, husband of the co-winner of the Nobel Prize in economics, and written in 1997, long before the current "flood of crises" in American "basic monetary and financial institutions."

These two quotes — Bono and Ostrom — both verbatim, reminded me of another quote — well, misquote — that circles around libertarian cyberspace every so often.

Ostrom is basically re-stating that infamous faux quote repeatedly (and incorrectly) attributed to de Tocqueville, that "the American Republic will endure until the day Congress discovers that it can bribe the public with the public's money."

Stated differently:

"How people conduct themselves as they directly relate to one another in the ordinary exigencies of life is much more fundamental to a democratic way of life than the principle of 'one person, one vote, majority rule.'"

Which is to say that "America qua idea" (cf., Bono's op-ed) is less about raw democracy for its own sake, and more about freedom — freedom to own and control property, freedom of contract (including the freedom to refuse a contract, such as health insurance), freedom to decide one's own charitable giving (rather than to have it forced upon you via taxes and subsidies), freedom to experiment entrepreneurially, freedom to take risks (but not subsidized risks), etc.

Which, yes, includes the reciprocal freedoms: freedom to fail, freedom to regret one's choices, freedom to be gullible, freedom to be weak-willed. Etc.

All of which is fundamentally incompatible with unbridled democracy — which, one more time, is at the end of the day nothing more than mob rule. The fact that the mob — or Bono — may consider itself "well-intended" or "enlightened" is utterly irrelevant.

America is indeed an idea. Or at least it was. Once upon a time…

What I would prefer is to look at the relative magnitude of this man's achievements — relative to two other groups that also had, so to speak, a tremendous impact on human populations:

1. The Communists. Soviet and Chinese Communism both tried, at least ostensibly, to do precisely what Borlaug did: bring principles of systematized mass production to agriculture. The problem, however, was that Communism (and socialism and Marxism and …) requires as a key premise the denial of the very existence, let alone the value, of innovation in economic activity. To a Communist, a farm (or a factory) is no different from a forest or a river: it is a mere "resource," that always existed and needs no entrepreneurial skill to utilize.

To a Communist, the only way to increase agricultural output was "more of the same" — more tractors, more pesticides, more peasants, etc. The concept of utilizing more science, more thinking, was incomprehensible to Stalin and Mao. And when their "plans" and "leaps" not only failed to enhance agricultural yields, but actually reduced them (i.e., through mismanagement, pollution, etc.), they then turned to an alternative somewhat less incomprehensible to them: slaughter the people. A dead peasant consumes no food.

2. The Dogmatic Religions. Almost all the blood spilled in the history of humanity has been in God's name. One of the most insolent responses by the apologists of dogmatic religions, especially the Roman Catholic Church, is that yes, religions have an ignoble past — and even an ignoble present (the Vatican's neanderthal attitude toward women, the Mormon Church's soulless attitude toward gays, Islam's … well, everything about Islam) — but they strive to atone for their past sins. The Church does good works…

Good works? Compared to Borlaug? Religion's apologists dare make such a comparison? What is a stray missionary expedition, parochial school, hospital or adoption charity (all of which, we should recall, are to this day tainted with some cruel sin of their own) compared to feeding the entire world?

There is a certain irony to the fact that the old saying, "Give a man a fish / teach a man to fish…" is in fact not from any dogmatic religious text (though many if not most Christians ignorantly think it is). For had any great large religion actually embraced this concept (shall we start calling it the Borlaug Doctrine?), then they would not now have to squirm under the light of their blood-soaked past and vomit-soaked present and blather on about their puny little "good works."

—

A post script:

He insisted that governments pay poor farmers world prices for their grain. At the time, many developing nations — eager to supply cheap food to their urban citizens, who might otherwise rebel — required their farmers to sell into a government concession that paid them less than half of the world market price for their agricultural products. The result, predictably, was hoarding and underproduction.

As I have said many, many times: The only reason there are poor people in the world is because thugs with guns keep them poor.

Reason Magazine's 2000 interview with Borlaug here.

But most important, what ensures survival in a zombie story are the progressive ideals of common cause and collective action. A small group of people from varying backgrounds are thrust together and find that they can transcend their differences of age, race, and gender (the typical band of survivors is a veritable United Nations of cultural diversity). They come to understand that if they're going to get out of this with their brains kept securely housed in their skulls and not travelling down some zombie's gullet, they've got to act as though they're all in it together. Surviving the tide of zombies requires community and mutual responsibility. What could be more progressive than that?

To which a libertarian replies:

The politics tend to lean left, but zombie entertainment approaches a level of discontent more elemental than mere anti-capitalism or shopping mall burlesque. Apocalyptic and piously disdainful of the carnal realities of human life, zombie cinema is a shocking, uproarious meditation on the nature of death—on what, if anything, we owe to the dead.

To which I replied:

What a Randroid would say, not entirely incorrectly, is that zombie movies celebrate reason over mysticism. Ever read Rand's West Point commencement address with its brief "science fiction" introduction?

Besides the obvious anti-religion backdrop required in any zombie movie, the people who survive are invariably the ones who think, reflect, reason and act. The ones who just sit, hope –and eventually scream — are the ones who perish.

A better question would be why so many of these movies have anti-Romanticist endings these days (i.e., the protagonists perish in the end anyway).

"Cloverfield" comes to mind, as does "Alien 3," "The Happening," "Invasion of the Body Snatchers" (1978 version), as well as the cut-away endings of the video games "Dead Space" and "F.E.A.R."

Leaving an opening for a sequel is one thing, but there's something disturbing and unfortunate about the popularity of gratuitous, existentialist, "it was all for nothing" endings in zombie and apocalyptic fiction.

I've also noted, but off-blog I think, the no-mere-coincidence that George Lucas made droids (i.e., not people) the main target of mass destruction in I-II-III at about the same time that Peter Jackson did the same with orcs (i.e., not people) in LOTR. Easier to justify the violence that way.

Another important trend to watch is the ratio of "government caused this" scenarios (e.g., "Day of the Triffids," "Colossus: The Forbin Project," "TDTESS v1.0") to "capitalism caused this" scenarios (e.g., "Jurassic Park," "Poltergeist," "Mad Max," "Waterworld," "TDTESS v2.0").

Previously:
–Klaatu's Externalities, Then and Now

Faith organizations and individuals who view homosexuality as sinful and refuse to provide services to gay people are losing a growing number of legal battles that they say are costing them their religious freedom.

The lawsuits have resulted from states and communities that have banned discrimination based on sexual orientation. Those laws have created a clash between the right to be free from discrimination and the right to freedom of religion, religious groups said, with faith losing. They point to what they say are ominous recent examples:

– A Christian photographer was forced by the New Mexico Civil Rights Commission to pay $6,637 in attorney's costs after she refused to photograph a gay couple's commitment ceremony.

– A psychologist in Georgia was fired after she declined for religious reasons to counsel a lesbian about her relationship.

– Christian fertility doctors in California who refused to artificially inseminate a lesbian patient were barred by the state Supreme Court from invoking their religious beliefs in refusing treatment.

– A Christian student group was not recognized at a University of California law school because it denies membership to anyone practicing sex outside of traditional marriage.
…
"People seem to say that if you enter the world of commerce, you lose all your First Amendment rights" to free exercise of religion, said Jordan Lorence, senior counsel at the Alliance Defense Fund, a Christian legal organization that has represented several businesses. "They … have become nothing more than vending machines, and the government can dictate the conditions under which they dispense their goods and services."

This is, of course, a decidedly libertarian argument. In Libertopia, all interactions, or at least all those involving competent adults, are strictly voluntary. There would be what the law calls "economic substantive due process," in the same way (and for the same reasons) that there is "privacy substantive due process" (e.g., Roe v. Wade, Lawrence v. Texas).

This is where libertarians tend to get into trouble. When confronted by non-libertarians with charges such as, "you oppose the Civil Rights Act" or "you believe in the right to be a racist business owner," we basically have to plead "guilty."

Of course, we also have the affirmative defense of asymptotic irrelevance. In Libertopia, there wouldn't be a Civil Rights Act because there wouldn't need to be a Civil Rights Act. Recall that Libertopia would be a capitalist society — and capitalism is always the first best weapon against bigotry. If you're a "greedy" businessperson, then you'll gladly buy from blacks, sell to Jews and hire gays. And if you don't, then you will suffer the punitive damages of competition — which far exceed those that could be imposed by any court of law.

So yes, on a strictly superficial level, libertarians would generally agree with the aforementioned laments by the bigots and theocrats. Point conceded.

But consider: What if the aforementioned litany of horribles had not been exclusively about gays?

– A Christian photographer was forced by the New Mexico Civil Rights Commission to pay $6,637 in attorney's costs after she refused to photograph an interracial couple's commitment ceremony.

– A psychologist in Georgia was fired after she declined for religious reasons to counsel a Jew about her relationship.

– Christian fertility doctors in California who refused to artificially inseminate a disabled patient were barred by the state Supreme Court from invoking their religious beliefs in refusing treatment.

– A Christian student group was not recognized at a University of California law school because it denies membership to foreign students.

Most hard-core libertarians would be unfazed in their support of economic substantive due process and its requisite toleration of such private discrimination in most of these scenarios. In fact, I would wager that libertarians as a group would be more likely to defend all the bigots than the bigots themselves would be ("Blacks are Christians; our problem is with Jews." "Jews are white; our problem is with blacks." Etc.)

The "victimized" Christian bigots are of course not making a thorough, comprehensive (i.e., truly libertarian) demand for full entrepreneurial freedom of contract — and its reciprocal "right to refuse service to anyone." All they want to do is discriminate against gays. Not "anyone and everyone." Just gays.

Which is precisely why they should not be allowed to do so. As I have blogged previously: Whether or not you approve of bans on private discrimination is not the point — we are not debating the creation of Libertopia.

The point is instead whether, given that we already have such laws, are we going to craft and apply those laws consistently, logically and equitably — or are we going to short-circuit the entire raison d'être of such laws by allowing the majoritarian mob to fashion carve-outs for the very same insular minorities who are most in need of such laws?

If the religious bigots really want to invoke libertarian arguments to legitimize their bigotry, then they better be prepared to be judged by real libertarians about the entire spectrum of libertarian issues — including separation of church and state.

Think they'll go for it?

Previously:
–On the ENDA-T Conundrum
–eHarmony, eCommerce and eBigotry
–Separation of Ice Cream Parlor and State?

When he goes before a Congressional panel Tuesday morning, Timothy F. Geithner, the Treasury secretary, is expected to call for the Treasury Department to be granted greater powers to seize troubled financial institutions that aren't banks.
…
In his opening statement, Mr. Geithner calls for the Treasury Department to have the kind of tools for winding down nonbanks, such as A.I.G., that the Federal Deposit Insurance Corporation has to seize failed banks.

Well.

A few pesky details about the FDIC:

• It's actually voluntary, at least nominally. People often forget that. The FDIC cannot seize any bank that does not participate in the deposit insurance system.
• The FDIC only seizes insolvent banks, not "troubled" banks. FDIC seizure is, literally, the remedy of last resort. Is Geithner really seeking an open-ended power to seize "troubled" non-banks? Who gets to decide what constitutes "troubled? Geithner, under an unsupervised regulatory mandate? Congress, subsequent to legislation? The President, subsequent to some Bush-like theory of "emergency economic powers"?
• FDIC's "seizure" power does not exist in a vacuum, and is technically not even a regulatory power in the literal sense. Whether strictly voluntary or of a more "Luca Brasi" nature, a bank's relationship with the FDIC is contractual: the bank pays insurance premiums (and, perhaps more important, pledges not to mismanage itself into insolvency), and in return the FDIC guarantees deposits (up to a point) and agrees, as a beneficial service, to take over a distressed bank's operations in anticipation of restructuring, sale or orderly liquidation.

Whatever Geithner is seeking, it is not "like the FDIC." The FDIC at least goes through the motions, however disingenuous, of being independent and voluntary. Geithner is simply slicing through the pretense and going stright to "a gun at your head and a contract on the table."

Previously:
–When Did Luca Brasi Become Deputy Treasury Secretary?
–FDIC for Dummies (and Politicians)

The Vice President today commended the new owners of Republic Windows and Doors, a Chicago window manufacturing plant that was shuttered late last year, resulting in the lay-off of its 250 union workers. Republic was purchased in bankruptcy court last week by Serious Materials, a California-based company that makes energy efficient windows. Serious Materials has announced plans to reopen the Republic factory and to eventually rehire all 250 of its laid-off workers at their former pay levels. Serious Materials said it purchased Republic because the Recovery Act will increase demand for its products.

That which is not seen: The jobs lost elsewhere in the economy because of: higher taxes, crowding out of private investment by government deficits, entrepreneurial paralysis in the midst of never-ending and always-changing regulation, rent-seeking, government waste, political corruption, and the perpetual font of self-congratulatory hubris from politicians, bureaucrats, their pundit apologists, and all the other central-planning fetishists.

Enjoy the windows…

Previously:
–Maybe We'll Be Really Fortunate and Mount St. Helens Will Erupt
–Obama's Broken Window Fallacy

GEORGE: When did you leave the message?

GEORGE: Will that be cash, or check?

–Seinfeld, "The Kiss Hello"

More absurd blather from one of my favorite recurring Kip's Law exemplars, New York Times' "Ethicist" Randy Cohen:

Q: A few hours before a dentist appointment, I had to cancel because my baby sitter was ill. The dentist charged me $25 for canceling within 24 hours. Days later, just two hours before my rescheduled appointment, the dentist’s office called: because of an emergency, my appointment had to be rescheduled. This is hypocrisy on their part, but should I accept that "policy is policy" or demand "an eye for an eye?"
…
A: For a precept to be fair, it must apply no matter who transgresses. Here this means that whether dentist or patient cancels at the last moment, the same penalty should apply.

This is, of course, utter nonsense.

Cohen's argument collapses after just three words. "Precept" is an insolent gobbledygook term that drops all context entirely — which Cohen must of course do in order for his strained conclusion to appear viable.

It is entirely correct (and entirely libertarian) to say that, "for a law to be fair, it must apply no matter who transgresses." But Cohen can't use the word "law," because no law is at issue. The scenario is simply a mundane contract — an entirely voluntary agreement between two competent consenting adults.

Cohen, realizing the inherent ludicrousness of his argument, decides to proceed anyway and embrace the absurdity:

That you could, of course, find a different dentist does not justify an asymmetrical, and hence unjust, rule.

But of course, the voluntary nature of the contract most definitely does justify the asymmetrical "rule" (another gobbledygook term meant to overstate the issue — contracts don't have "rules," they have terms). But Cohen's argument would lose its luster and drama if he tried to blast an "unjust term," which is of course an oxymoron in the context of a voluntary contract anyway.

One more time: Any voluntary contract among competent consenting adults is, by definition, "fair." This is true for the simple reason that the only legitimate context by which "fair" can be measured is the subjective evaluation of the parties to the contract.

Just as all tastes and preferences are subjective, so too are all standards of contractual fairness. The fact that a third party might consider the contract "unfair" is utterly irrelevant beyond the choice not to enter the contract herself.

That rule applies — or in a sane society ought to apply — not only to a single third party observer (such as you, me, or Randy Cohen), but also to any number of third parties, no matter how large, as well as to the legislators whom they elect.

Democracy should be more than two wolves and a sheep voting on whether a dentist is being "asymmetrically unjust."

Kip's Law: Every advocate of central planning always — always — envisions himself as the central planner.

—

As an aside, Cohen appends an economic efficiency argument to try to defend his preposterous assertion that all asymmetrical contracts are inherently "unjust" —

To cancel precipitously can harm, or at least inconvenience, another person. If you do it, the dentist might miss an opportunity to treat another patient. If the dentist does it, you can lose the baby sitter’s fee or the chance to make other plans. The $25 charge both compensates for and, even more, deters the unwanted conduct.

This is a common fallacy often invoked to rail against adhesion contracts. In fact, such contracts — asymmetrical or otherwise — are highly efficient and reduce transaction costs for all who enter into them.

How much more expensive would a cruise or airline flight be if the carrier had to draft separate contracts with each passenger? Would sophisticated software ever be developed if each EULA had to be individually negotiated? And would a trip to the dentist be more or less expensive if the dentist had to hire a full-time "contract drafter" to accommodate each patient's notions of "asymmetrical injustice"?

The single best way to achieve economic efficiency is simply to leave people alone to pursue it themselves.

Previously:
–We Killed Off Lochner for This?
–On Narcissistic Altruism

The problem, the government soon discovers, is that the philatelists are carrying portfolios of stamps on their books at valuations that are now clearly inflated, as indicated by current market transactions. So, for example, a rare stamp that a philatelist bought for $10,000 will now only fetch $1,000 on the open market. If the philatelist writes down the value of the stamp, and others like it, then her firm will promptly go bankrupt.

The government has two options (recall that Option 3 — "do nothing" — has been dismissed ex ante as "bone-headed" by politicians and academics, including a winner of the Nobel Prize in Philately).

Option 1 is simply to give taxpayer money to the philatelists — perhaps as loans, perhaps as equity investments, perhaps as subsidies. The "toxic stamps" stay on the firms' balance sheets, but they are at least in a healthier financial condition and better able to "ride out the storm."

Option 2 is to buy the toxic stamps from the distressed philatelists and place them in a "bad album." If and when stamp values recover, the government can systematically liquidate its holdings, thereby recouping some of the money that it paid to the distressed philatelists. Theoretically, the government could even turn a profit.

The problem with Option 2 is that the government must buy the toxic stamps from the philatelists at an above-market price. Otherwise the stamp collectors are in no better position than if they sold the toxic stamps on the open market.

So instead of simply giving a distressed philatelist $9,000 in bailout funding (Option 1), the government can instead buy the toxic stamp (worth $1,000 on the open market) for $10,000 (its now-absurd book value).

The first thing you should realize is that there is no conceptual difference between Option 1 and Option 2. The toxic stamps remain toxic, the distressed philatelists are still recipients of taxpayer funds, and the government is still exposed to downside risk if stamp values decline or even merely fail to appreciate.

The only difference between the two approaches is packaging. To the public, it might seem like Option 2 — the "bad album" — is a more substantive approach than Option 1 — which reeks more openly of "bailout." Under Option 2, the government is buying a tangible asset, courageously stepping in to replace a free market that is "broken," and not just "throwing money" at the "incompetent" (or "greedy") philatelists who got themselves, and us, into this mess in the first place.

And besides, with the "bad album," there's always the chance that the toxic stamps are worth "more" than they're, um, worth — that politicians and bureaucrats will be able to trade stamps more profitably than professional philatelists. Who knows — the taxpayer might actually come out ahead in the end. Or so the politicians tell us.

—

Snap back to reality. Yes, this is all farcical in the context of philately. But it's just as farcical in the context of subprime mortgages:

As the Obama administration prepares its strategy to rescue the nation's banks by buying or guaranteeing troubled assets on their books, it confronts one central problem: How should they be valued?
…
While the government is considering several approaches to helping the banks, including more capital injections, buying or insuring toxic assets is likely to be a centerpiece. Determining the right price for these assets is crucial to success. Placing too low a value would force institutions selling and others holding similar investments to register crushing losses that could deplete their capital and make it harder for them to increase lending.

Of course, there already is a "right price for these assets" — the market price. The whole point of Option 2 — creating a "bad bank" — is determining how best to distort the "right price for these assets."

Assigning arbitrary (i.e., false) prices to toxic assets is merely deciding the "right" mix of Option 1 and Option 2. But since Option 1 and Option 2 are, bottom line, the same thing, what exactly is all the noise about?

It's certainly not about economics. So the only other possibility is that it's about politics. Bone-headed politics.

—

If the philately example is too contrived for you, how about a bona fide, real-world example:

The bond that is trading at 38 cents provides a vivid illustration of the dilemma in valuing these assets.

The bond is backed by 9,000 second mortgages used by borrowers who put down little or no money to buy homes. Nearly a quarter of the loans are delinquent, and losses on defaulted mortgages are averaging 40 percent. The security once had a top rating, triple-A.

Michael G. Thompson, a managing director at the S.& P. group, says his computer models can easily calculate what the bond is worth under different situations. "This is not rocket science, this is straight bond math," he said. But determining what the future holds is much harder. "We are not masters of the universe who can predict the macroeconomic environment," he added.

He can't predict the macroeconomic future, but Timothy Geithner — who can't even compute his own taxes correctly — can predict it flawlessly?

Who really believes that, besides George W. Bush (and now, apparently, Barack Obama)?

File that, I suppose, under "change we can believe in."

—

As an aside, the record should reflect that Paul Krugman is, for once, exactly right about the absurdity of the "bad bank" proposal. Broken clock, etc. And this in no way excuses his pathetic and unprofessional "bone-headed" tantrums regarding the stimu-pork proposal.

Previously:
–The Bailout, the President and the Fallacy of Intrinsic Value
–Linkfest: Some More Criticisms of "We're Not Wrong, The Market Is!"

With only minor injustice, one may take this as the overarching mantra to which the core of the economics profession marches. Government is accorded a beneficial role in this vision only to provide purely public goods, such as national defense; to remove private-market imperfections, such as monopoly power on either side of the market; or to deal with so-called spill-over effects from private decisions, which economists call "externalities." These exceptions aside, unquestioned belief in the sagacity, efficiency and beneficence of private markets reigns supreme.
…
This analytic structure, formally called "neoclassical economics," depends crucially on certain unquestioned axioms and basic assumptions about the behavior of markets and the human decisions that drive them.

This alleged "crucial dependence" on "unquestioned axioms" explains, we are told, why

Fewer than a dozen prominent economists saw this economic train wreck coming — and the Federal Reserve chairman, Ben Bernanke, an economist famous for his academic research on the Great Depression, was notably not among them.

So, to review:

1. Neoclassical economics says government should not intervene in markets without a compelling reason such as public good provision, monopoly regulation or correction of externalities.
2. The government intervened in a market — housing and mortgage lending — without a compelling reason.
3. Bad things happened. Very bad things.

Conclusion: Neoclassical economics is worthless.

And we wonder why most college graduates, despite taking at least one economics course as undergraduates, are worse than illiterate when it comes to economic policy analysis.

—

More:

An inference drawn from the profession's credo is that private markets invariably are self-correcting and are driven by rational human beings whose careful decisions serve to allocate scarce resources efficiently — that is, these decisions maximize a nebulous thing economists call "social welfare."

This is true — up to a point. Since interpersonal utility comparisons are impossible, the notion of "social welfare" is also impossible.

But who is guiltier of invoking the fiction of "social welfare" as the basis for economic policy prescriptions — neoclassical defenders of laissez faire or neo-Keynesian defenders of unbridled income redistribution and economic interventionism? Economist, heal thyself!

Finally, note that there is another, far more powerful defense of capitalism than the "unquestioned axioms and basic assumptions" of neoclassical economics and its "social welfare" predictions. And that is the moral defense of capitalism: the remarkably modest suggestion that an economy based to the greatest extent possible on voluntary exchange among competent consenting adults rather than on government coercion (i.e., majoritarian looting) might — just might — be "the greatest good for the greatest number" regardless of what the economic data (or the economists who parse them) might otherwise suggest.

"Wall Street is greedy. Greed, for lack of a better word, is bad. Therefore Wall Street is bad and must be regulated to the greatest extent possible. The mortgage bubble, the subprime asset fiasco and the stock market collapse are merely the latest evidence of this."

There are, of course, holes in this reasoning large enough to fly a jetliner through. Predatory borrowers come to mind, as does the fact that there was in reality no meaningful "deregulation" of Wall Street to speak of. Not to mention the pesky fact that "greed" has always existed — on Wall Street, in Washington and everywhere else. It's a bit silly to blame something new on something as old as Eve.

What the anti-capitalists are really engaging here is a bait-and-switch between economic regulation and criminal law. They are expecting economic regulation to serve the function of criminal law. Moreover, they are demanding not only that regulation serve a penal function, but they are also demanding that it do so flawlessly and even presciently.

Consider this anecdote from the Wall Street Journal:

The little blue house rests on a few pieces of wood and concrete block. The exterior walls, ravaged by dry rot, bend to the touch. At some point, someone jabbed a kitchen knife into the siding. The condemnation notice stapled to the wall says: "Unfit for human occupancy."
…
Less than two years ago, Integrity Funding LLC, a local lender, gave a $103,000 mortgage to the owner, Marvene Halterman, an unemployed woman with a long list of creditors and, by her own account, a long history of drug and alcohol abuse.
…
For a $350 fee, an appraiser hired by Integrity, Michael T. Asher, valued the house at $132,000.

The rest of the tale follows the standard subprime-foreclosure-"Wall Street bastards" script. But it was all spawned by one apparently criminal act: a likely fraudulent appraisal by a crooked low-level functionary.

This is a big part of why the anti-capitalist, anti-Wall-Street screechers are so wrong. Besides the pesky problem of borrowers such as the deadbeat, alcoholic Ms. Halterman is the added failure of greed-damning malcontents to distinguish between regulation and criminal justice.

If I go out and murder someone, does that suggest that the penal code "failed" or that the police "failed"? If I go out and rob a bank, does that mean that the Federal Reserve "failed" or that the FDIC "failed"? Of course not.

All the government can do is establish consequences for malfeasance, then make sure I know the consequences of that malfeasance. If I accept those consequences and commit the crime anyway, then what more is the state supposed to do exactly, except assign a prosecutor and impanel a jury?

It cannot possibly be the responsibility of regulatory bureaucracies such as the SEC to prevent criminal conduct a priori. The government can only provide the framework to help people avoid being victims, and to punish malefactors afterwards. The pre-bubble apparatus did exactly that. The fact that people went ahead and allowed themselves to be victimized after the fact doesn't mean the system was somehow "broken," any more than the fact that there are still murders suggests that our homicide statutes are somehow "broken."

—

Here, meanwhile, is a counterexample that nicely illustrates my point:

[Harry] Markopolos saw two possible scenarios. In the "Unlikely" scenario: Mr. Madoff, who acted as a broker as well as an investor, was "front-running" his brokerage customers. … In the "Highly Likely" scenario, wrote Mr. Markopolos, "Madoff Securities is the world's largest Ponzi Scheme." Which, as we now know, it was.

Harry Markopolos sent his report to the S.E.C. on Nov. 7, 2005 — more than three years before Mr. Madoff was finally exposed — but he had been trying to explain the fraud to them since 1999. … And yet the S.E.C.'s cursory investigation of Mr. Madoff pronounced him free of fraud.

What Madoff did was unarguably illegal — very illegal. And the criminal justice system is now dealing with him as best it can. Moreover, the regulatory framework — mandatory disclosures, etc. — was already in place. There was no "deregulation" or "laissez faire" for a unhinged leftist to gnash his teeth about. The failure was strictly bureaucratic — strictly governmental. And remind me again who was in the White House, and therefore controlled the S.E.C., in 1999?

—

Another font of regulation-criminalization confusion is the rating agencies:

Moody's Corp, McGraw-Hill Cos Inc's Standard & Poor's, and Fimalac SA's Fitch Ratings have been blamed for failing to flag problems with mortgage securities that have spread through the financial system.
…
Rep. Stephen Lynch, a Democrat from Massachusetts, said his constituents did not have the ability to scrutinize the various tranches that make up an asset-backed security, but said that they did know what a triple-A meant. "They rely on them and are reduced to relying on them. A lot of people feel like they have been defrauded," Lynch said.

Of course, no one is actually suggesting that the rating agencies engaged in any criminal or tortious fraud. It just "feels like" fraud. Which these days is all it takes for malcontents and politicians to demand their pound of flesh.

Incidentally, the rating agencies are a government-chartered oligopoly. Remind me again about how this is all a "failure of laissez faire"?

(Via Crime & Federalism.)

Previously:
–What About Predatory Borrowers?
–Mortgage Lending: "I'm From Harvard and I'm Here to Help"
–Is There a "Right" to a Competitive Mortgage?