Contrary to my belief in the merits of the free-market, I supported the $700 billion bail-out—partly out of selfishness because I did not want to see my 401k statement if it didn’t pass.  Supporting the free-market can be difficult, especially when you are living through tough times.  After reading article by Joseph Calhoun I am glad the House defeated the bailout plan.

One problem with the bailout plan is it would have introduced more regulations to prevent “greedy” Wall Street officials from creating another financial crisis.  Greed is one of the seven deadly sins.  It has been around since the dawn of time and will cease to exist only when humans cease to exist.  No amount of laws will prevent individuals from trying to bilk the system.  I just started reading the book Den of Thieves by James Stewart, which is a history of the Wall Street scandals of the 1980s.  One wonders why individuals don’t learn any lessons from history—that markets rise and fall and speculative bubbles will eventually burst.  Actually the problems in the 1980s were worse in that the crisis were the mainly result of illegal activities like insider trading.  The crisis today is not for the most part the result of illegal activities but the result of over speculation.

The only way to limit the effects of greed is to ensure the free-market punishes those who over-extend themselves.  One of the four Cardinal Virtues is moderation.  The free-market detests speculation and when left to its’ own devices it rewards moderation.  Investor Warren Buffet is a good example of someone who buys stocks with the long-term in mind, who doesn’t worry about the day-to-day fluctuations of the market.  The drop in the stock exchange today is the markets way of punishing those who over-extended themselves.  If anything, it was government officials encouraged (blackmailed?) banks to provide loans to people with questionable credit.  In addition, the Federal Reserve kept interest rates too low for too long. 

There is a good chance today’s nearly 700 point decline in the Dow Jones is the worst that will happen and the stock market will stabilize around this level for the coming weeks.  For those individuals who do not plan to retire in the next five years, they are not hurt by the downturn.  If anything they will benefit because they can purchase stock at a lower price than they could a week ago.

Life has not stopped.  People are still shopping, the Major League is still planning the playoffs, and Monday Night Football will go on tonight as it has for the last forty years.  Most of the financial crisis was caused by market distorting government intervention.  The fastest way for the markets to recover is if the government stays out of the way.