The Natural Balance of Fullness and Emptiness: How Government Bailouts Make Things Worse

As with all sciences, the study of strategy studies the operation of natural systems. All such systems exist as a balance of forces. Sun Tzu abstracted this balance as emptiness and fullness, basing his vision on the concept of complementary opposites that is known as the Chinese concept of yinyang. The dynamics of nature continually shift the balance of forces, but the universe doesn't fly off in chaos or freezing into stasis because of this mainspring built into nature. While we humans can leverage the forces of nature, we cannot control them. Attempts at control always create more of an imbalance and usually result in the opposite of what we desire. For example, the proposed government bailouts of financial institutes are actually having the effect of creating the liquidity that they are attempting to remedy. Financial institution have a problem because they have too large a percentage of non-performing mortgages on their books. No one wants to buy these mortgages at book value because they are not performing, but the mortgage companies don't want to sell them below book value because that would mean they would have to take big losses. However, the natural forces of nature would force thm to sell these mortages at big discounts simply to survive and pay the bills if it were not for one thing: the hope of government bailouts. Because of the involvement of Fanny and Freddy, that hope was built into the system creating the liquidity that is freezing the credit market into stasis making borrowing increasingly difficult. If companies had to sell those bad mortgages at big discounts, the companies might fail, but the forces of the system would flow naturally and credit markets would be safe. The financial institutions have become the residents of New Orleans who are staying in their houses in the face of the hurricane because they think that the government can save them. We have seen where that thinking leads.