Why not let Wall Street chips fall where they may?

Today's New York Times published an editorial on the Fed's semibailout of Bear Stearns. Titled "Socialized Compensation." Its pitch was: "Until bankers face a real risk of losing their shirts, they will keep ratcheting up risks to collect rewards while letting the rest of us carry the bag when their punts go bad."

Here's the comment I posted:

For me the New York Times editorial board is a Jekyl/Hyde phenomeon. When it opines on illegal immigration it's little more than a far left rant that substitutes namecalling invective for anything approaching reason. Yet when it comments on economic matters--as here--it seems well within the ballpark of resonability.

But then I'm a moderate Democrat/populist. On the other hand my spouse of many years is a born Republican/devout Mormon/social conservative accounting manager who has never voted for a Democrat for president (just as I have never voted for a Republican so far). She also believes the NYTimes is such a committed left-wing advocacy organization that she gives it little credibility up front. Nevertheless I read her this column and asked what she thought of it.

She said it made sense to her from an accountant's perspective that financial executive compensation should be based on trailing indicators. But she questioned the "inflammatory headline" ("Socialized compensation) and felt that the editorial didn't do enough to link such compensation to tax dollars.

Lastly she felt the editorial didn't clarify why the Board felt the Fed did the right thing in helping to bail out Bear Stearns. Speaking from a fiscal conservative viewpoint, she asked why not let Bear Stearns suffer the consequences of its own rashness--essentially saying "As ye sow, so shall ye reap." And if some other Wall Street financial institutions took the fall with it--well, wouldn't that be the Darwinian thing to do? Wouldn't that best teach the remaining institutions more caution? It was the main thrust of this editorial to get financial institution executives to act more like bankers and less like casino high rollers.

Well, by far the simplest, least regulatory way to do that would be to let stupid companies die. And in the long run that might well be the biggest favor the Fed could do them.

So said my very conservative wife--and somewhat liberal me is inclined to agree with her.