The movie was critically acclaimed (and a big box-office hit) and is highly recommended (its lame sequels are another matter). However, the purpose of this post is not film criticism, but analogy.
Economic policymakers around the world, both in the US and (more recently) in the Eurozone, have various policy directives which guide their activities. The Fed explicitly has a dual mandate to fight both unemployment and inflation, policymakers elsewhere are similarly charged. Yet in many cases, including the current handling of the European debt crisis, policymakers at institutions such as the Fed and the ECB act as though they are guided by a "fourth directive" as well; and that fourth directive seems to be something along the lines of the following:
Do not do anything which will significantly harm the interests of capital.
The various policy arms of the US government went to heroic lengths to bail out the financial markets, but seems far less interested in bailing out distressed homeowners. Whether or not this is because the banks are really "too big to fail" (meaning their demise would truly produce systemic collapse), or simply too politically powerful to be allowed to fail, is an open question--but after programs such as TARP were enacted, it seems offensive to hear politicians tut-tutting about moral hazard when the subject is people losing their homes to foreclosure.
A similar scenario is now playing out in Europe, where the ECB seems intent in ensuring that the financial markets in the wealthy northern countries get their pounds of flesh, via imposition of stark austerity programs on the poorer southern Eurozone countries, programs which will likely result in a severe recession (on top of the current one), and may lead to the breakup of the Euro itself. Granted, some of the debtor countries arguably went beyond their means and over-leveraged themselves to the point that an economic downturn left them unable to pay off their debts (Spain, Italy), and at least one debtor country could be fairly described as a deadbeat republic (that would be you, Greece). The sanest course of action for European policymakers--insisting that the (mainly German) banks which made the bad loans in the first place take a haircut, combined with an injection of capital into the markets to protect depositors and refloat the Mediterranean economies, however, is simply not under consideration.
Interestingly enough, the Fed last week announced a program to lend dollars at low rates to the ECB, in an attempt to stabilize European financial markets, a maneuver which prompts three questions: 1) The ECB is a sovereign currency issuer; why does it need to borrow money to fund its market operations, particularly when the bulk of the debt in question is denominated in Euros and not dollars? 2) Why is the US government being so activist in bailing out foreign financial markets? 3) And, particularly, if the answer to question #2 is "to prevent/limit recession", which is itself not unreasonable, then why is there so much reluctance to similarly intervene in the domestic economy, particularly on behalf of beleaguered consumers and underwater homeowners?
A likely answer to these three questions can be found within the fourth directive.
