You’re making one of my points for me, Alex: that economic libertarianism can’t permit itself into a perfectionist ideology and quasi-faith wherein every market failure is explained away by pooh-poohing that it wasn’t really a failure of the market it was a distortion of the market. Despite the fact that it shouldn’t go down that route there is always somebody, like you, arguing that tired cliche.

We heard decades of that nonsense from the grimier side of the Iron Curtain: failure X or Y or Z wasn’t really a failure of communism but rather was a distortion of true communism. It’s silly. It puts libertarianism in the same Platonic Ideal Magic Pony Land of a never-realized Truth, like communism, or religions’ view of the infallibility of their sky fairy of choice, or Andrew Sullivan’s notion of conservatism: no failure is ever accepted as evidence of failure of the concept itself, or any key part thereof; the failure can only be in the execution because the concept is without flaw and can never be in error.

As for “what’s my point”, I made that clear both in two separate ways. If you truly don’t get it then one of two possibilities exist: either you’re too thick to get it, in which case I’m wasting my time explaining it to you again, or you deliberately aren’t getting it, in which case you’re arguing in bad faith. The latter is more likely, given how you twisted the discussion of redlining to set up yet another straw man. You like to argue and you’re just not very good at it.

Redlining was a problem when local S&L’s dominated the mortgage market. You can get a quote from 10 different institutions in 10 minutes online now, so it’s really a red herring now unless you believe that all lending institutions are really a racist cabal to minimize profits and piss off minorities.

Also, I agree with everything bornskeptic said. His point about these bailouts not being sunk costs is especially important.

Lobby it. You’re too big to fail.

Also, I don’t get a comment equating temporarily banning short selling as being some kind of huge threat to our freedoms. Pretty much everyone in the business seems to believe that there was huge nonsense being driven by some shortsellers, simultaneously shorting the heck out of stocks they haven’t borrowed, buying the heck out of credit default swaps on those same companies’ debt, pulling their prime brokerage business, and telling their friends that the way the firm’s stock/cds are trading looks like what happened just before Enron imploded, and such. In better times, there is enough capital on the long side, ready to step in and punish such actions of short sellers, but in this market, nobody wanted to step up. As a result, huge companies have been pushed into the equity death spiral black holes, something that would not be possible in better times or if there were some restrictions on how aggressive short sellers can pound the stock. As someone who spent seven years running long/short portfolios of stocks in the hundreds of millions, I never understood why naked shorting was allowed (against the rules but tolerated), not did I understand why investors don’t have to disclose short positions like they do long positions.

Clearly, short selling won’t be banned for ever, but to take a time out, I think what’s been done now is fine. Just bringing back the uptick rule would have probably been better. The really stupid thing was that the SEC let the emergency prohibition against short selling in certain financials lapse on August 12. After that’s when everything hit the fan.

America’s first world friends — Western Europe, Canada and the like — have balanced financial systems in which the government is a consistent, predictable and integrated player.

Note the words “balanced”, “consistent” and “integrated”, for starters. (I should have added “limited” because in most of those countries there is only so far that a government can or will go.) Such an approach, proven to work in every single other industrialized, capitalist western economy has enabled them to avoid the disaster that America has.

More brutally to the point, your notion that libertarian arguments are restricted to the apple-pie notion of individual/market allocation is wrong. The notion that regulation itself is harmful is a well-established one in American economic libertarian thought, going back to Coase and Stigler, to name just two. (I’ll cheerfully concede in advance hat Stigler’s “capture” theory is exceptionally significant here because it describes the Bush 43 administration to a “T”. The most significant gap in the theory is its inadequate recognition that the lack of a regulatory framework can lead to consequences even more disastrous as the biggest economic actors and interests exert their interests and distortions directly on the market without the restraining impact of having to operate indirectly through systems designed to inhibit their operations.)

America’s current massive mess is due to its own fiscal extremism at the opposite end of the scale from the “war torn shitholes” that you mention. (How we’ve got 40+ entries into this thread without mentioning Phil Gramm and his role in deregulation is beyond me; Gramm is an excellent example of a corporate kleptocracy enabler who derives his drive from purist libertarian principles and language.) America could have saved itself by use of a more balanced, judicious and restrained governmental role rather than the wildly changing and very weird fiscal speedball of deregulation mixed with corporate welfare/kleptocracy that it created this problem.

It looks as if I have to simplify my point for you. I will do so.
I said: “America wouldn’t be in this mess if it had a system more like Canada’s or Western Europe’s.”
You said: “Right, like we want to be like Zimbabwe!”
Fail.

http://bloggingheads.tv/diavlogs/14410

Here’s an article from 2000 that describes the problems with Clinton’s handling of the CRA. In hindsight, it’s extremely prescient.

http://www.city-journal.org/html/10_1_the_trillion_dollar.html

Money quote: “If loans that win banks good CRA ratings were going to be made anyway, and if most of those loans are profitable, should CRA, even if redundant, bother anyone? Yes: because the CRA funnels billions of investment dollars through groups that understand protest and political advocacy but not marketing or finance. This amateur delivery system for investment capital already shows signs that it may be going about its business unwisely. And a quiet change in CRA’s mission—so that it no longer directs credit only to specific places, as Congress mandated, but also to low- and moderate-income home buyers, wherever they buy their property—greatly extends the area where these groups can cause damage.”

From seeker6079: “A common libertarian counterargument is that if we remove the government as a player in the market then the market will solve the problems. Sorry, but that is arrant nonsense, and disproven nonsense at that.”

The arguement is actually that individuals, through markets, allocate resources more efficiently than governments. All the wealthy, first-world countries have market economies, and all the war-torn shitholes have command economies. Maybe it’s arrant nonsense to consider that a coincidence.

1) Way too many financial institutions were investing, ultimately, in mortgages.
2) The fact that they were investing in mortgages was too often obfuscated.
3) Risk assessment at all levels basically ignored the possibility of the housing bubble collapsing. So now safe loans are not so safe, riskier loans are even riskier, and it’s very difficult to determine the value of the properties in question. The banks are in a bind because they can either collect on their loans or foreclose on the property and sell it to recoup the loan–but the loans are looking riskier and massive foreclosures will probably push housing prices *down*, meaning they’re potentially losing money in either case. General freakout ensues.

I mean, I’ll take the point that banning redlining maybe makes FIs a little more open to making loans to folks with low income, bad credit, whatever, but at the same time, I get the impression that that is something that took place across the board–i.e. it’s not just poor people who have mortgages they can’t pay for now. Also, AFAIK, the FIs were making money on those loans, so it’s hard to argue that, you know, Clinton forced them to make these loans when the loans were more or less profitable. The greater general availability of credit is probably somewhat responsible for the housing bubble, but credit availability has, if I understand it, been driven by creditors looking to expand their markets and the use of more sophisticated methods of risk analysis.

Please explain how redlining (which, incidentally, is actually the practice of denying loans to minority applicants while granting them to equally-qualified white applicants) is responsible for this mess.

Truer words have never been written.

America’s first world friends — Western Europe, Canada and the like — have balanced financial systems in which the government is a consistent, predictable and integrated player. They aren’t subject to constant free market maximalist ideological pressures (a la the Chicago school) within their systems like America is; they don’t have rapacious corporate maximalists like America does; they haven’t had and don’t have massive deregulation like America; they haven’t largely defanged their securities, banking and fiscal regulatory agencies, as America has. I’d wager that their bankers, investment houses, investors and consumers aren’t significantly smarter or dumber than America’s.

Two easy questions:
1. Is it America or its counterparts that is suffering a “once in a century” massive real estate, banking and investment meltdown?
2. And why is that?

You can sit on a purist economic libertarian argument all you want. Even if you deeply and genuinely believe in it (as most of the people do here) the fact is that unregulated markets are the same as unregulated streets: small, selfish groups of the population will take advantage of the lack being restrained to take whatever they can to their sole benefit, and everybody else be damned. And if the same people who would do this also control the government then they can maximize their thievery; that too has happened in America as what we can call the apex class (the Bushes and the like) game the system to their benefit.

A common libertarian counterargument is that if we remove the government as a player in the market then the market will solve the problems. Sorry, but that is arrant nonsense, and disproven nonsense at that. To continue wiith the example I gave above it does not stop wild looting, it merely means that the looters aren’t wearing cop uniforms. If you have lost everything to such thieves then the distinction between the two types of loss probably means nothing to you, nor should it.

Libertarian thought is perhaps one of the best and analytical tools and starting points for social organization out there: leave everybody alone to do whatever the hell they want unless it hurts others or there is a very compelling social reason justifying the intervention of the state. But the notion that we can have economic, social and political order based on purist laissez faire notions has been discredited and it might be best just to face up to that.