EH: One has to take competing goods here. There is the good of justice, and if you were to look at it that way, these foolish and reckless people should be punished for their acts. In many cases they were just following orders, or in some cases just taking advantage of a system that presented them with a certain set of opportunities.
SB: Gullibility and greed.
EH: They suffered from gullibility and greed, and they happened to be in a place where suffering from gullibility and greed allowed them to make a fortune. And so I'm happy to judge them for the good of justice that we are trying to pursue. We would spend a lot of time trying to disentangle the responsibilities, taking into account circumstances, motivations and acts, as one always does with that kind of question. But there's another good we are trying to balance that with, and that is the continuing operation of the economy. One can make a set of practical judgments about what kind of "bailout" we need, or adjustment, recapitalisation or reorganisation, but something probably has to be done because the way the financial dynamics are working is rather destructive. But the actions that promote these two goods are quite likely to contradict each other because, when you're actively trying to recalibrate the financial system, a lot of financiers who helped create the disequilibrium will end up either completely rewarded or at least not punished. But so it is in the world, it's very unlikely that you can get everything right, and I would argue that the more important issue, the more important good to pursue, is the equilibrium of the financial system.
DJ: Is there a danger of moral hazard?
SB: I would just put it in a slightly different way. One of these dispossessed sub-prime borrowers, in Staten Island, which is probably the only lower-middle class part of New York, was interviewed on television, and he said that he would rather stand in the breadline if a banker was standing next to him, than have his own position rescued and the banker not get into trouble. Now that summed up everything I dislike, not about morality, but about moralism. If I had my way - I think this may be true of Ben Bernanke, the chairman of the Fed - I would drop dollar notes from the sky if there was a danger of the market seizing up. It would serve several purposes - it would also help with obesity and physical fitness.
EH: Keynes said you should bury them in the ground. That would be even better for physical fitness.
SB: Either way, it would be better than bailing out these bankers. On the other hand, people are not sophisticated enough to see a simple solution like that, and the only way they can think of getting the monetary mechanism working is bailing out the bankers. I sympathised for the first time in my life with someone like Hank Paulson, when he got down on one knee before a hard-bitten left-wing Democrat, and asked her - interestingly, a her - to help get his proposals through Congress. Because surely it is much more important to keep the monetary side of the system going - the monetary side has always been a mystery, the person who got nearest to understanding it was Keynes, but nobody ever completely has - than it is to punish the bankers. What I would do, is do everything they say, get down on both knees before the most populist member of Congress, to get the bloody thing moving again. Afterwards, we can have an investigation and see if we can prevent the worst culprits from getting off scot-free. I doubt if we can, because I think that some of the cleverest of the evil-doers have already taken their profits and are already enjoying their villas, and that's what they can do. But it is more important to promote prosperity and welfare than it is punish a few evil-doers.
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