I was struck today by two trends underway that are, on the one hand, not connected but, in another way, are connected because they paint a picture of what government can do and what it shouldn’t do.

    On the one hand, take this story from the Associated Press, printed as a brief in The New York Times:

The Herndon Town Council voted 6 to 1 Wednesday to keep its day laborer center open but to find a new operator that will check the immigration status of the workers who use it. The current operator, Project Hope and Harmony, a nonprofit group, has refused to check workers’ documents. The center has been the focus of debate since it opened two years ago to provide a more organized alternative for workers who used to flag down potential employers on the town’s main street. Six months after the center opened, voters elected a new mayor and two new council members who opposed it.

    So, here we are left with no sane immigration policy other than punishment and enforcement.

    On the other hand, we get a wild ride in the mortgage market thanks to a whole lot of very irresponsible and unsavory, if not outright illegal, behavior by all those financial institutions who hooked in a lot of people to sub-prime mortgages, without, in my opinion, really telling people the dangers inherent in these mortgages. Along with the pundits who went along with the…can I say "scam"?…, the industry built a shaky pyramid of loans that were not based on sound financial criteria and ignored fundamental economics.

    And what are we talking about doing for those folks? A bailout. I’ll have more to say about this on Monday but Paul Krugman correctly observes today:

Many on Wall Street are clamoring for a bailout — for Fannie Mae or the Federal Reserve or someone to step in and buy mortgage-backed securities from troubled hedge funds. But that would be like having the taxpayers bail out Enron or WorldCom when they went bust — it would be saving bad actors from the consequences of their misdeeds.

    In fact, if I’m not mistaken, it was that great oracle Robert Rubin who helped Enron survive when it was on shaky ground. Krugman also rightly points to the malfeasance involved:

For it is becoming increasingly clear that the real-estate bubble of recent years, like the stock bubble of the late 1990s, both caused and was fed by widespread malfeasance. Rating agencies like Moody’s Investors Service, which get paid a lot of money for rating mortgage-backed securities, seem to have played a similar role to that played by complaisant accountants in the corporate scandals of a few years ago. In the ’90s, accountants certified dubious earning statements; in this decade, rating agencies declared dubious mortgage-backed securities to be highest-quality, AAA assets.

    As Krugman points out, we should try to help the millions of people who fell prey to the malfeasance. Check back Monday–I’ll have a notion on that.