Iain Dale makes a trenchant observation:

According to Woodward and his Cabinet colleagues, the banking crisis is almost entirely down to the effects of globalisation and the US sub prime mortgage market. I completely acknowledge that this is at least in part an entirely reasonable argument.

But if you don’t acknowledge the failures in regulation and in public policy in this country and place the whole blame on external issues, you are implicitly, or tacitly acknowledging that if you were powerless to stop it, you are powerless to solve it. In short, you hold up your hand and say ‘there’ nothing we can do’. That is, of course, patently ridiculous.

The moment a government surrenders to external forces and says it can do nothing is the moment it also surrenders the right to be called a government.

Heartfelt. But is it true? Or wise?

Is not part of the problem that we have no real way of knowing what an ‘external issue’ actually is these days?

Being hit by a meteorite presumably still counts. But even natural disasters such as floods or hurricanes are ascribed by some people to the negative effects of human activity.

How much of the financial mess has been caused by Greed? Probably quite a lot. But given that Greed is quite a handy motivator much of the time, maybe the underlying problem was an unwise regulatory framework set by government(s) which enabled that greed to spin off in weird directions?

And if governments ‘do something’ now, what new heavy negative effects will that in turn cause down the line?

One of the deepest problems of our time is the idea that anything that happens which we do not like requires state intervention of some sort.

This feeds the socialist collectivist ideal that in principle government controls/owns us, not the other way round.

Plenty of people are denouncing the loathsome hypocrisy of financial Fat Cats who (it is said) rush squealing for help to the government when times get tough.

Yet think about what is happening here.

Huge private financial institutions – who raised their funds through myriad private transactions of people and business by voting freely with the funds lawfully at their disposal – are being gripped by the state, the only power in the land which can use violence to force people to pay into its coffers.

The money of people who wisely did not invest in these institutions is being seized through taxes to bail them out. Is that so great? It certainly is not a point which Polly and Co dwell on.

As Jim Manzi points out, the threat that an unprecedented wider collapse might ensue arguably justifies this state/collectivist intervention. But he reminds us that the philosophical and practical downsides are also terrific.

So, to return to Iain. Of course governments can always ‘do something’.

But maybe it does no harm to keep explaining to the public that markets can and do correct themselves; that state intervention means taking choice away from millions of people and giving it to tiny numbers of bureaucrats largely insulated from the costs of getting anything wrong; and that where the state does weigh in, it should do so not to micro-manage via regulation but to set transparent intelligent standards so that citizens themselves can help create the right outcomes through their own daily choices.

After that, let the chips lie where they fall.

If government is to do anything strategically useful in all this, it should set incentive structures to encourage intelligent risk-taking – and loss-accepting.

Doing Something in the form of ‘saving’ badly run private institutions through state intervention encourages stupider risks.

And so will end up being massively wasteful, sooner or later.