“Socialized Risk, with Still Highly Leveraged Survivors”

I do not agree with everything Austrian Economics preaches — but I believe they are dead right when it comes to the way to handle insolvent banks.

This week’s Barron’s has a short interview with Kevin Duffy and Bill Laggner of Bearing Asset Management.

I really like Kevin’s quote on the bank rescues:

“Any healthy system needs a way to correct error and remove waste. Nature has extinction, the economy has loss, bankruptcy, liquidation. Interfering in this process lengthens feedback loops. Error and waste are allowed to accumulate, and you ultimately get a massive collapse.

Capitalism is primarily attacked by two groups: utopians who wish to impose a more “compassionate” system, and political capitalists who want to enjoy the fruits of success without bearing the pain of failure. They use the coercion of the state to gain privileges, at the expense of everyone else.

As a country we’ve become less tolerant of economic failure. The result has been a series of interventions, such as meddling in the credit markets, promoting homeownership and creating a variety of safety nets for investors. Each crisis leads to an even greater crisis. The solution is always greater doses of intervention. So the system becomes increasingly unstable. The interventionists never see the bust coming, then blame it on “capitalism.”

-Kevin Duffy, Bearing Asset Management.

Good stuff . . .


Shorting the Economic Recovery
Barron’s DECEMBER 28, 2009

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