Catching Up with Keith
On December 21, Keith Haldeman posted a quotation from the Snarkmeister blog contending that Bernard Madoff did nothing worse than what Paulson and Bernanke are doing to the economy. “In a sad way,” said the Snarkmeister, “Madoff should be admired for having been able to accomplish such a swindle without the help of the U.S. Congress.”
My first thought: clever maybe, but a cheap shot that minimizes the $50 billion fraud. And, by the way, Madoff didn’t do it alone—he had help when the SEC turned a blind eye. Investors were lulled and gulled.
Upon reflection, however, there is something to Keith’s posting.
Our economic system is based on confidence that we are going to be properly treated. This confidence comes about because of past experience, the reputation of the people we deal with, private and public methods of validation, and the knowledge that we have recourse (courts and arbitration systems) to correct a problem when it occurs.
A bad experience like Madoff's trickery will teach some painful lessons, warning many investors to be more careful the next time.
But what lessons will be learned from the crisis and bailout? If any, probably the wrong ones. First of all, the bailouts create a moral hazard in which any organization will push to be “rescued.”
More fundamentally, the lessons of what happened to our economy, and why, may never be learned. At dining tables across the country this holiday season people are discussing what caused the crisis of 2008. Was it the Fed’s laxness? Barney Frank and his friends at Fannie Mae and Freddie Mac? The periodic madness of crowds? And if it was all of these and more, in which proportions?
Nearly 80 years after the Great Depression began, a similar conversation goes on about the cause of that crisis. There is no consensus. Then and now, the country is too large, the forces too many, and people’s political and ideological predilections too strong for widespread agreement to develop. Thus the Madoff scandal, however painful and shocking, will fade into history, but the economic crisis of 2008 may never be understood.
Keith Halderman - 12/26/2008
I in no way meant to minimize the actions of Bernard Madoff. He is the scum of the earth and he should rot in prison the rest of his miserable life. I just thought the quote was a nice expression of Murray Rothbard's thought that when you view government as nothing more than a criminal gang you begin to understand.
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