Sunroom Desk

Articles under the Paperweight last week explored weaknesses of the so-called “free market,” the fatal (human) flaw in mortgage securitization, the necessity of shrinking firms “too big to fail,” citizen outrage over the government’s role in financial and policy failures, and the necessity of crafting public policies that allow more working Americans to share in their employers’ financial success.

Calculated Risk’s readers, as usual, posted on-the-mark comments to “My Manhattan Project,” about the programmer who wrote software for securitizing mortgages. Among them: “Breaking news: engineer blames user!”

Ezra Klein’s blog essay argues for a specific capital limit to the future size of banks. David Goldstein, writing for the National Resources Defense Council blog, makes the case for government intervention in the market:

What has not been recognized is how regulation is always necessary to make markets work in the first place. Government regulation is not a move from capitalism to some form of socialism, instead, regulation is a necessary condition for capitalism and free markets to work.

An LA Times editorial admits we can’t solve California’s budget crisis by eliminating waste and nepotism, but says lawmakers pushing tax increases have little credibility when any amount of taxpayer dollars are being squandered.

The Wall Street Journal, defender of free markets, admits that growing income inequality, stagnant wages for all but the top 1% of earners (with the financial sector a very large part of that 1%), and a shrinking manufacturing base (as too many resources were diverted to finance) have contributed to justifiable public outrage. Its reasonable, in fact overdue, for the federal government to intervene in the “market,” eliminate perverse incentives, and address these problems:

In the long run, the administration is trying to tell the pitchfork brigades that it intends to use the power of government to try to reduce income gaps — raising taxes on the wealthy, cutting those on the middle class, giving refundable tax credits to the working poor. When Treasury Secretary Timothy Geithner was asked about income inequality on ABC’s “This Week” last weekend, he said explicitly: “It should go down.” The goal, he said, is a recovery in which “the gains are more broadly shared across the economy as a whole.”