Basic fairness

I usually admire George Will for being a good and intellectually honest writer, but I think he really misses the main liberal concern over McCain's noninterventionist approach to the credit and housing crisis. Says Will approvingly:

[McCain] says "it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers." For now, he is with Senate Republicans in opposing the Democrats' proposal to empower judges to rewrite the terms of some mortgages, an idea that strikes at the sanctity of contracts and hence at the ethic of promise-keeping that is fundamental to social life.

He goes on to criticize liberals as typically anti-market:

With the command-and-control propensity of contemporary liberalism, Clinton predictably advocates a policy that has a record, running from Roman times to the present, that is unblemished by success. It is the policy of price controls: Her proposed five-year freeze on interest rates would be a control on the price of money.

And concludes with a standard conservatives-are-all-about-
individual-responsibility-and-ipso-facto-the-free-market comment:

Obama says that McCain's (again, relatively) noninterventionist response to credit difficulties proves that he favors a "you're on your own" society. McCain, a center-right candidate seeking to lead a center-right country, should embrace Obama's accusation as an accolade, saying:

"This is the crux of the difference between the two parties -- belief in the competence, responsibility and accountability of individuals. When Obama characterizes my position as 'little more than watching this crisis happen,' he again has part of a point. The housing market must find its bottom, and no good can come from delaying the day that it does."

For all this talk of personal responsibility and the sanctity of the free market, it is amazing to me that Will doesn't so much as mention the 400-pound gorilla in the room: the Fed's multi-billion dollar bailout of Bear Stearns. There is widespread agreement--from economists of both liberal and conservative stripe--that it was right for the government to bail out Bear Stearns, because it and other firms in similar liquidity trouble are "too big to fail". That is to say, if Bear Stearns and other Wall Street financial institutions were allowed to sleep in the disheveled beds that they've made for themselves, the ramifications would be so extreme as to usher in a second Great Depression--causing a chain reaction of firm failures and a credit drought that would cause the economy to grind to a halt and implode (metaphors mixed: 4!). Since that would be a horrible disaster for everybody, it is widely agreed that, though doing so constitutes a "moral hazard"--i.e., would be rewarding bad behavior in the market--it is nevertheless necessary for the good of all to bail out these huge firms.

The liberal--or not even really liberal, just the common-sense question is: how can you justify bailing out the financial institutions while at the same time leaving individual homeowners to fend for themselves? It seems to me that basic fairness dictates that what is good for the goose is good for the gander: if you're going to bail out some players, you have to bail out all the players, irregardless of the accidental fact that some are "too big to fail" and others aren't. Sure, this consitutes a "moral hazard"--but isn't it true that your market morality has already been heavily compromised by the Bear Stearns bailout in the first place?

To George Will's credit, it appears as though, if it were up to him, there wouldn't have been bailouts for anyone, Bear Stearns included. At least, that's what I glean from this comment from his appearance on This Week with George Stephenopoulos:

The Republicans have now put themselves in a bind because people now say look if you have Wall Street socialism, whereby you save Bear Sterns, or at least save JP Morgan to buy Bear Sterns, and you are thereby socializing the losses and keeping the profits private, why not help everybody. Soon we’ll hear from everyone in the country who has a student loan. This is,it’s a burden, help me.

Setting aside the empirical question as to whether or not this course of action would have caused Depression II--a result that I think we can all agree is a lot worse than violating "the sanctity of contracts" and, by way of slippery slope, inviting the collectivist ire of indebted grad students--I think Will is guilty of the same sort of ideology-induced fallacy that affects liberals who want troops out of Iraq just because they never should have been there in the first place. In both cases, the question is of the form: Given that x has already occurred, what should we do about y? You can't just give an ideologically-pure, pat answer that condemns both x and y. The answer needs to acknowledge that the fact that x has already happened complicates things, and that, pragmatically, this affects our decision about y. For the liberal on the Iraq issue, that means acknowledging the possibility that leaving Iraq could be way worse than staying; and for Will on the housing crisis issue, it means acknowledging that there is at least a problem of perceived unfairness with regards to bailing out Wall Street while ignoring Main Street.