Wall-E vs. It’s a Wonderful Life in the Markets

There was an amusing debate on CNBC between my friends Rick Santelli and Steve Leisman about which of them is wrong concerning the markets and bailouts. Here is the gist, and the video follows.

wall-e-space-image Leisman accuses Santelli of economic Mellonism — liquidate! liquidate! — and of being in favor of (and these are my words here) some sort of economic Wall-E, with all of us somehow going off-planet until the credit market carnage subsides. I don’t disagree with this take, and I think that too many people get off easy — Jim Rogers included — in pushing the simplistic idea that you could have let banking systems collapse, drive employment to double-digits, and just live with the subsequent societal carnage.

On the other hand, Santelli argues that Leisman is pushing a benign view of government interventions out of A Wonderful Life. He says Leisman is ignoring government’s prior failures during other massive economic/market interventions, of which there are many. And Rick is dead right, and he could marshal far more evidence than he does, but his point stands.

My take: We were stuck with doing something, as we had created a system that was over-leveraged, tightly coupled, and prone to systemic collapse. The fabric of this society is weak enough that no-one could predict the impact of that rupture, and so we had to reluctantly take steps to bail the system out. We now have a monstrous obligation to make sure it doesn’t happen again, which is part regulation, part behavior, and part turning banks into something more like public utilities, but one thing at a time.

Does it mean I’m happy with what is happening? No. I want the government back policing the streets, pushing snow, and putting Illinois governors in jail, so the sooner that happens the better.