I'm a libertarian. Shouldn't I be angry about the Wall Street bailout?

Yes. No. Sort of.

Let me explain.

I am not the sort of libertarian who thinks that any and all financial intervention by the government is definitionally a bad idea. I am in favor of the Federal Reserve. I am the lone defender of the FDIC at libertarian events. I have been known to find kind words for the SEC. So I am not, in principle, opposed to this sort of bailout on the grounds that this is not the government's job.

Liberals like Paul Krugman and Kevin Drum are up in arms about the notion that the financial sector is privatising benefits while the public sector is taking on all the risk. They are looking for a way to make the bailout hurt for the bankers.

Readers may be surprised to learn that I basically agree with them. The bankers who decided that they had repealed the law of averages should suffer. A lot. Every time they get on the jitney to the Hamptons, I want them thinking "Did I leave the uncovered credit risk on?" Many of them should lose all their money pour encourager les autres. This is not about bailing out Wall Street; it's about bailout out us.

As with the people who took out unwise mortgages, I am in favor of having the government make strategic interventions to shore up the markets, but I think that they should make it hurt. No one who took excessively risky behavior--even if they honestly didn't realize it was excessively risky behavior--should escape without getting spanked, hard. Pain is nature's way of saying "Don't do that!", a lesson that apparently a lot of us needed to learn.

There will still be some sort of moral hazard, I think (though the mysterious knzn does have a point), in that bankers will not be as cautious about systemic risk as they should be. Alas, we live in an imperfect world, and the price of preventing catastrophes is that you will have more of them to prevent. Ultimately, that's a price I'm willing to pay. And I think you should be too. The people screaming that we ought to let the banks fail don't seem to realize that they, too, can be thrown out of work in the resulting hideous recession.

In the case of the employees and shareholders of Bear Stearns, I think they're probably hurting just about right; most of the Bear Stearns bankers will lose their jobs, and most of the shareholders will lose their shirts. This is as it should be.

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