Sub-prime mortgage crisis - should we just let nature take its course?

Earlier I wrote about the contagion effect of the financial crisis and how we could now expect even thicker regulatory responses. As I write this the US government is considering a revised 'rescue package' . On the Sunrise morining show today David Koch, a financial specialist, reflected the general opinion of his financial expert peers....either pass the bill or the US goes into recession, so why they be so stupid enough to deny it? However in the networked world, everything is connected to everything. I can fully appreciate why this decision isn't a 'no-brainer'. We are in this situation because some financial institutions lent money that they didn't really have to people who couldn't really afford to repay the loan. Other banks, showing similar irresponsibility were also buying into these loans. Short term gain, but long term pain. The US government, heavily in debt, had some big expenses on wars and natural disasters of recent times , now looking at purchasing high risk loans.... sound familiar...short term gain, long term pain?

What we are observing is a stock market that is acting as a huge amplifier of even small network disruptions. The government is appropriately looking to 'govern' or limit the extreme effects. However, at one extreme the 'living systems' view would say that if we let nature take its course, that is, do nothing, the US goes into recession and takes with it many other countries. The hard lessons are learnt and stay with us for a very long term. At a personal level we are much more circumspect as to where we put our money. If we can't see or understand the value proposition we don't invest. we become more conservative, we therefore don't grow as fast, but also don't suffer the roller coaster rides that seem to be only getting wilder. In other words, nature becomes its own best governor.

A little while ago I was visiting friends who had young children. One of their boys had misplaced some money he was taking to school to pay for an activity. He was devastated and crying, nearly inconsolable. However, as his father had said to me, this wasn't the first time this had happened. He had been somewhat careless with money. The easy thing to do was to simply replace the money. However this would mean their son would learn little from the experience. Mum or Dad would always be there to bail him out. They could replace the money but dock his pocket money for the next few weeks. This would at least mean he might learn something as long as they remembered to do it. The hardest thing would be to do nothing and let him suffer the consequences. It could result in some life long learning for their son, but as parents could they be strong enough to watch their son go through the painful consequences? As parents we have all faced this dilemma....so lets have some empathy for those US senators that are taking their time deliberating their decision.