John Galt Plan Might Save U.S. Financial System
Commentary by Caroline Baum
March 10 (Bloomberg) — Let’s face it: The Federal Reserve must be scared to death as it watches the financial system unravel.
Unravel would appear to be the operative word as leverage proves to be as toxic on the way down as it was intoxicating on the way up.
The following day, Fed Chairman Ben Bernanke encouraged mortgage servicers to write down a portion of the principal on home loans, which would give owners some equity and discourage foreclosure. He advocated a bigger role for the Federal Housing Administration, a Depression-era agency that insures mortgages. Congress envisions an even larger role for the federal government.
Any day, I expect some government official to unveil the John Galt plan to save the economy.
Galt, the hero of Ayn Rand’s magnum opus “Atlas Shrugged,” stops the world by going on strike. He and the “men of the mind” literally withdraw from the world after watching their wealth confiscated by the looters (the government).
Toward the end of Rand’s 1,000-plus page novel (or polemic), the economy is in shambles. Desperate, the looters kidnap Galt and prod him to “tell us what to do.”
Galt refuses, or rather tells them “to get out of the way.”
Road Is Cleared
You probably can sense where I’m going. Today’s economic and financial crisis would resolve itself more quickly and efficiently if the government got out of the way. Yes, there would be pain. Some banks would fail. Others would clamp down on credit to atone for the years of lax lending standards. Homeowners-in-name-only would become renters. Housing prices would fall until speculators found value.
That’s not going to happen. The bigger the mess, the more urgent the calls for a government solution, the more willing government is to oblige.
We want laissez-faire capitalism in good times and a government backstop against losses in bad times. It’s a tough way to run an economy.
See Baum’s full commentary for more.