Noah denkt™  -
    Project for Philosophical Evaluations of the Economy
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This will eventually cause an economic tsunami
Comment on yesterday’s historic economic rescue plan by the USA, drafted and published
on Sept. 20, 2008
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On Jan. 22, 2008 Noah denkt™ opined that “it should not be the upcoming recession which should worry people
most”, but that it should much rather be “
one of the recessions after this one” that would keep people sleepless at
night. After all, so we argued then, would the US government do “anything it can to counter this [current]
downtrend”. And so a fundamental correction would not even have a chance to take root now. For too litlle would
the latter be permitted to do its job this time around, that one could now still hope to avoid more dramatic
consequences later on.
(See our Q&A: “Looks like a recession is imminent ...”)

Obviously Noah denkt™ had no idea at the time that its predictions about the governments rescue efforts would
come true in such a dramatic fashion as it has done yesterday. And what’s more Noah denkt™ had no idea that
the current downward trend would turn out to be as devastating as it has proven itself to be.

Nevertheless, this project sticks with its original forecast according to which it will be one of the next recessions
that will cause the biggest pain for the general public. In fact, Noah denkt™ believes that yesterday’s decision by
the US government to set up an RTC-like emergency plan will eventually cause an economic tsunami that will
have consequences which will be similar to that of the Great Depression.*

Now, the reason why Noah denkt™ is so pessimistic about the future has nothing to do with the fact that tax
payers’ money has been made available to bail-out the mistakes made Wall Street’s fat cats. After all, we concur
with the analysis of those who are in favor of the RTC- plan which suggests that all the public money that is now
being used to prop up the system will eventually be recovered to the hilt. -  No, if we are against this plan it is
because of the flagrant betrayal that Bush government has committed yesterday against its own free market and
neo-conservative principles. For it will be this spectacular show of governmental inconsistency that will set the
stage for more and continued private inconsistency. And so it seems impossible to us, to now stop the systemic
anarchy that will result from this.

Given therefore that it is primarily the moral contagion in the social sphere that will eventually wreak havoc onto
the economy, we would like to say to Mr. Bush that it was wrong to impede market forces from doing their job. For,
if the US economy truly is as resilient as the president repeatedly claims it be, it would have been able to reinvent
itself in a relatively easy manner still. Now, however, this necessary correction has been postponed and so it is
only reasonable to presume that the evolutionary forces that have been quelled this time around will over time
accumulate even more destructive powers. For too much has their push for change been stifled now, that you
could now still hope to manage their explosiveness peacefully.    

Now, critics of this assertion will surely claim that no president could have permitted that his country looses all or a
substantial part of its financial system. And in deed this would have been a hefty price to pay. If, nevertheless, we
still argue in favor of doing just that, it is only because we are convinced that occasionally it is better to accept a
near suicidal risk in the short term in order to avoid more traumatic mayhem later.

No, no, if we want to do the truth justice here, we have to admit that the self-destructive tendencies of democracy
and capitalism are way too pervasive to be able to control them in a pain-free manner. And so we advice
everyone not to run away from fear. Because too little would they then have contemplated angst, that they could
now still hope to manage the latter adequately.

We do not want to finish this comment though without rectifying a remark we made earlier.
(See our comment.
Congratulations, USA”). After all, we can already hear those in the public who will likewise accuse us of a double
standard in our stance. For too much, so will these critics say, have we ourselves condoned a possible AIG-bail
out earlier that we could now still mount a credible anti-interventionist defence.

And, in deed, it is true that our position is not entirely anti-interventionist. What we think is very important though
is to avoid purist extremes and opt for a balanced middle of the road position when having to manage the present
crisis.  After all, both the systemic risk and the moral hazard argument are too legitimate that you could now still
choose to ignore either one.

If you therefore want to manage an economic crisis adequately you have to walk a very fine line between
encouraging this and sanctioning that. Because otherwise you will have abdicated too much from the stage-
setting moral obligation that government authority naturally holds, that you could now still hope to exercise the
latter in its due and prudent form.

Given therefore that balance is our overriding principle we stick with our original take
  • according to which it was okay to let Lehman Bros. die,
  • according to which it would have been better to let Bear Stearns do the same
  • according to which it was okay to bail out AIG because of systemic risk
  • according to which it was tolerable to nationalize Freddy Mac and Fannie Mae, since they never were
    entirely private enterprises
  • according to which it was questionable whether it was right to open the discount window to investment banks
  • according to which it was questionable whether a Northern Rock-bail out  was necessary (in the UK)
  • according to which it was wrong to save IKB-Bank (in Germany), and
  • according to which it was plainly wrong to interfere with the markets in such a dramatic fashion as the US
    government has done yesterday.

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Footnote*: By the way, if matters go terribly wrong it might even be that this presumed tsunami will unleash itself into the current
downturn.
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