“Nations, like individuals, cannot become desperate gamblers with impunity.”

This truth applies whether the bet is made by individuals acting foolishly or by governments essentially pooling everyone’s stack to chase a straight draw to the river. The difference is that in the former case, the individual realizes the loss, in the latter, everyone loses. Of course, sometimes, politicians like to combine the two and bail out bad private decisions (TARP) by gambling current and future earnings on one big bet (stimulus).

By the way, the quote above is from page 70 of the excellent Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay. (Available here) The book chronicles the financial manias that swept Europe in the 18th Century.

As I slowly make my way through it (some parts are a bit dry:), I am struck by how government, business and the general public are all very supportive of these schemes out the outset. The first two groups making the bubbles possible when unscrupulous businessmen petition various governments with promises of untold riches and national glory (as well as generous bribes) and bureaucrats only to happy to accommodate such schemes, with an eye toward increasing personal wealth and political prowess, change the laws to allow the scheme to go forward. The people, to their discredit, believe that the rogues governing them and trying to sell them something have suddenly struck upon a new and amazing way for everyone to get rich and eagerly get on board. Of course when the house of cards comes crashing down, the bureaucrats are quick to blame the businessmen for deluding themselves and the public and promptly mete out punishments to satiate the calls for blood from the people, perhaps even sacrificing a few of their own number for good measure, who the bureaucrats insist are the hapless victims. And so it goes until the next mania hits–”extraordinary” was perhaps a bit of naivete or maybe sarcasm on the part of Mackay.

Semi-relevant rant begins in 5, 4, 3, 2, 1…I found Rick Santelli’s Tea Party rant and John Stewart’s takedown of it to both be correct and also mistaken:) Santelli is correct that people should exercise extreme caution when they hear of a deal (such as subprime loans with no credit check or Jim Cramer telling you to buy, buy, buy even though assets are overvalued) and that responsible folks should not be made to bail out irresponsible folks. John Stewart is correct in his criticism of Santelli only focusing on irresponsible borrowers, conveniently failing to mention that Wall Street, et al. are getting bailed out by taxpayers too and that talking heads have been reassuring investors that the financial giants and other firms were solid investments. Stewart ignores the fact that investors aren’t bags of goo that can only do what Cramer and company tell them. Presumably, many are fairly intelligent (including those who allowed themselves to be talked into mortgages they couldn’t afford), but put aside their caution and told themselves they were going to get rich or at least own their own homes. Caveat emptor, caveat viewer. Both Santelli and Stewart neglect to mention the role that government played in starting this mess through a continuous policy of easy credit. End of rant.