I was particularly moved by one friend who sent an e-mail to a small group of people (including me) yesterday morning, asking us to pray for "the financial system to not completely melt down and, on a more personal note, specifically that I remember to honor God in all I do." This same friend wrote later on that evening, "A lot of people lost tons of money--probably good for their spiritual lives." It wasn't a vindictive comment, because this friend was one of those people that lost tons of money. As far as the comment around how financial hardship, especially in the light of excessive wealth, can help people to regain perspective in terms of the purpose of life and their spiritual bearings, I think there's some credence there.
There's been a lot of discussion around the obligation of the government to come to the rescue of these firms, and an article in the New York Times by Joe Nocera outlines a pervasive culture of denial and draws parallels between bailing out firms and bailing out individual mortgage holders. At the end, I do believe that there has to be some degree of accountability to accept the downside risks of these transactions from both an institutional and individual level.
This is where the "moral hazard" argument comes in against bailing anybody out. If you create an atmosphere where there are real consequences from taking on a mortgage beyond your means (losing your house) or from assuming too much risk buying volatile mortgage-backed securities (going bankrupt), you rightfully punish the reckless and affirm the good sense of the people and firms that used better judgment.
But the reality is that especially in the case of firms, as a recent AP article attests, there's an uneven standard governing which companies get a government bailout and which don't. Two key factors seem to be the number of jobs affected and the impact on the economy vis a vis the broader financial and housing markets.
The first factor is best illustrated by the Chrysler bailout in 1979 in which the bailout was clearly done to preserve American manufacturing jobs, but one could argue that this was merely a prelude to a period of government-subsidized incompetence in the American car industry. Furthermore, I don't think any friends of mine at AIG, which did get bailed out, has any sense of job security at this moment.
The second key factor around impact upon the larger economy is also what differentiates the bailout of the firm and the individual mortgage holder. Is this fair? Probably not, and there are millions of angry people screaming things along the lines of “Why does the government continue to bail out the rich companies, but let the ordinary person go without a life preserver, unless you count the little $600 they sent out? Whose home got saved from foreclosure on that?” as compiled on an MSNBC article.
There are no simple solutions. The reactionary thought of "let Darwinism rule and see companies like AIG, Fannie Mae, and Freddie Mac die", while leading to some vindictive glee picturing a CEO in a three-piece suit sobbing on his desk, would ultimately be worse for everybody. There's no point in holding on to a principle of disincentive which broadly hurts the larger society, which is essentially cutting off the nose to spite the face. Unfortunately, the taxpayers will have to hold their nose (no irony intended), help atone for the misjudgments of others, and try to weather the storm.
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The question of whether the federal government should have or have not "come to the rescue" so far is still on-going. For example, economists are not in agreement, and people on Wall street are not either (I suppose this largely depends on whether you are making/loosing money).
I've noticed that a lot of the visceral free market (as in zero-government involvement) supporters ("believers") tend to work (or used to) on Wall Street. They abhor any government regulation/interference and believe that the market is self-sustaining and can fix itself. In light of this year's economic meltdown, I'm waiting to see if this opinion, held by some, will change ... and if so, for how long. Then, again, by the way things are going at the moment, even government intervention does not seem to be helping as much.
One good (of many) that can come out this debacle, as hinted in the original post, is the realization that no matter how well an economic system may seem, it is not invincible. Another is a realization of just how cold this system can be will be better grasped by those who have not been burnt by it in a while. Deeper still, a pinning down of the human nature from which this debacle came about and a conviction at heart of the need for a greater-than-oneself to overcome it.
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