David Glasner: Hawtrey, Cassel, Hayek and the Great Depression
Quote of the Day: February 3, 2012

Which Romney Is Romney?

One of the more surprising things about Mitt Romney was in evidence yesterday.

When the market is broken, it is silly policy to wait for the market to fix itself and then fix a situation.

Yet that is what Romney wants to do, over and over again.

He wanted to do it in late 2008 with the auto industry. He wanted the government to back off, to let private firms come in with debtor-in-possession financing, and let the private sector reorganize the auto sector. The problem that Romney did not see was that the financial crisis meant that there was no private debtor-in-possession financing available. Thus having the government step back and leave the private bankruptcy process to work itself out would have meant not Chapter 11 but Chapter 7, and liquidation--a liquidation of the American auto industry that it is now evident would have involved an enormous destruction of long-run value.

In a similar fashion, Romney yesterday said that the government should get its nose out of the housing-finance business, let the waves of foreclosures roll their way forward, and let the housing market find its bottom.

But private mortgage lending is broken: there are no large pools of private money willing to take on long-term mortgage default risk. Either the government backstops the risk and greases the transactions, or the market freezes.

The somewhat scary thing is that Romney had and has advisers who know this very well, at least as well as anybody in the world. Glenn Hubbard's briefings to Romney today about housing markets must be filled with statistics and anecdotes about housing-finance market failures. Jon Gruber's healthcare briefings to Romney of seven years ago were filled with analyses of health-finance market failure: that is why Romney decided to go with the individual mandate in order to limit the extent and influence of health-finance market failure.

The Romney who ran pain appeared then to be firmly reality-based. Where has that Romney gone?

The hope is that that Romney will reemerge after the election should Romney become president. The hope is that the current Romney is simply a mask donned to pull off a con job on the Republican Party base.

But I have not found anybody who claims to know what is really going on.