Thursday, October 18, 2007

Will this man speak of nothing else?

This is a letter I sent to the Wall Street Journal today concerning the (Surprise!) superconduit.


In his 10/18/07 Opinion piece, Peter J. Wallison, expressing support for the “superconduit,” argues that “…without a liquid market for the assets they created, originators of mortgages, credit-card loans and other loan facilities would reduce the availability of credit, raise their rates, or both. The economy might enter a recession.”

Several points merit making:

First, Mr. Wallison presupposes that the superconduit will create a liquid market. It’s easy to agree that liquidity will be created, or at least provided. However, that the superconduit will create a market, in the sense of buyers and sellers freely coming together of their own volition with their own money is a harder argument to make.

Second, the reason that we are in the midst of these difficulties is that credit was too widely available at rates that were too low. Would a reduction in the availability of credit and/or higher rates be such a bad thing? Some might argue that a little more prudence on the credit side would have spared the economy its current travails. As they used to tell recovering alcoholics, it’s never too late to reform.

Third, when did avoiding recession become the chief goal of all monetary and fiscal policy? Some of us are old enough to remember when a recession was a normal part of the business cycle that could be expected every five to ten years. While painful, recessions served to wring excesses and imbalances out of the economy and were a natural mechanism for getting the economy back on its normal growth path. Where did we develop such hubris to think that we can, and should, avoid recession altogether? Such an attitude indeed helped put us in the midst of the difficulties we are now confronting.

Mark Quinn
Naperville, IL

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