Friday, October 10, 2008

Careful for What You Wish

Nothing to Fear, but Government Itself

We know we are in trouble when the populace screams for government control of our economy.

Don't get me wrong. Prudent government regulation in itself is not a bad thing.

But then, what is prudent?

From the Wall Street Journal:

Government Fear Itself
Potential bank investors don't want to be 'AIG-ed.'

Amid economic fear and uncertainty, many Americans naturally look to government for reassurance. But with its vast power and potential to harm, government can itself become a source of panic. This has happened too often in recent days as Americans and the world have finally awakened to the scale of the losses in the banking system.


One problem is reckless news leaks of potential policy actions, some of them far-reaching, without adequate thought or public explanation. Take Friday morning's reports, presumably leaked by Treasury, that the federal government might insure all bank deposits. This would be no small matter. Until recently the feds insured deposits only up to $100,000 per account, and last month it raised that to $250,000. Ensuring all deposits would add another $1.9 trillion in taxpayer guarantees.

It isn't clear, however, that insuring all deposits would do much more to reassure most retail savers, who have largely stayed calm. There have been runs on individual banks but so far not runs across the system. Yet leaking the possibility of such a policy change is the kind of thoughtless action that could well incite such a run.

Full Artice, Government Fear Itself