Why the Bailout Plan Failed
The reasons become clear when one steps away from the panic for just a moment.
October 1, 2008 - 12:00 am
There is a parable I learned long ago from the continuous improvement management philosophy. It’s called “rocks and water.”
Imagine you want to row your boat along a full, gently flowing river. No sweat. Imagine the water level drops significantly, exposing the jagged rocks along the riverbed. Now try rowing. Can’t do it; too many rocks.
In the parable, the water is any enabling resource of which having lots can obscure problems. In many businesses, the water is cash. Too much cash makes it easy to ignore the rocks underwater. Only when the water is drained can we see — and remove — the rocks. Many of the best organizations keep their water level low on purpose so that when rocks begin to appear they can be seen and dealt with.
Now with a panicking New York-DC axis, I can’t help but think about rocks and water. We’ve let the water level rise for decades, hoping it would keep everyone floating along. The so-called “predatory lending” that some point to is just a sliver of the problem. The real problem is that, driven by well-intentioned policies, some smart pencil-pushers figured out how to create a mechanism for avoiding risk altogether. Make the loans, sell the risk to someone else. This opened the floodgates as it became easy to invest with little apparent downside. With the system set up this way, no one feels the pain — until everyone feels the pain.
The river’s drying up now.
The main story being told is that those idiot “back bench” House members scuttled the imperfect-yet-necessary rescue boat for the American economy. In the howls from the editorial columns you can hear the derision. Almost the entire elite of America was unified behind the need to take the rescue deal on offer. How dare these rebels place mere “politics” ahead of the needs of the “market?” Don’t they understand the stakes? To read the coverage, you’d think some small minority had sunk the rescue dinghy because they did not like the color it was painted. Idiots. Cowards.