Everyone Take a Deep Breath

As the markets drop and Wachovia's disappearance has elevated anxieties about the future of our financial system, please keep this prespective from Safehaven.com's Haste Makes Waste in mind:

The problem with trying to legislate in the middle of a revolution is that you aren't sure whether you are governing the world that is being destroyed or the one that is coming into being. There can be little question that the Wall Street that existed at the beginning of this year is no longer the industry that Congress is seeking to rescue from its own excesses. The financial world has been permanently altered by the collapse of the debt bubble that inexorably
built up over the past three decades. Now Congress is trying to design a rescue plan for a world whose shape is highly contingent and unstable. Such an undertaking requires more than two weeks of work.

Conventional thinking tells us that the government must do something to stabilize the markets immediately, and that doing something is better than doing nothing. Once again, conventional thinking is wrong. Congress would be much better advised to take the extra few days or week it would take to structure a plan that the world is going to have to live with for a very long time.

As we were completing this newsletter, the House of Representatives voted down the emergency package and the financial markets are panicking. Such panic is unwarranted. The world should take a deep breath and consider whether defeat of a deeply flawed bill should be treated as a catastrophe or a rallying cry to develop a better plan that addressed the underlying issues that need to be fixed.