TEXT OF COMMENTARY

KAI RYSSDAL: Let me bring it back to the top of the program for a second. And all that speculation about whether or not the Fed’s going to cut interest rates next Tuesday. There’s a related idea that goes along with that. That if the Fed does cut, it’s somehow rewarding speculators who did dangerous things with their money. Commentator David Frum says we shouldn’t be too quick to judge.

David Frum: In economics and in politics, we don’t give our leaders too much credit for the good things that do happen and too little credit for the bad things that don’t.

This bias is not just unfair. It can dangerously skew decision-making. If we’re not careful, in fact, it may just skew today’s mortgage crisis into tomorrow’s financial panic.

To understand, let’s step backward a decade. The financial markets of emerging Asian economies like Indonesia collapsed in the summer of 1997.

The downturn in Asia cut global demand for oil and other commodities. Lower oil prices wrecked the finances of oil-exporting Russia. And a year later, the Russian government defaulted on its bonds.

The ensuing turmoil pushed a huge U.S. hedge fund, Long Term Capital Management, to the brink of insolvency.

In September 1998, the Federal Reserve Bank of New York negotiated a rescue package for the hedge fund.

This decision was much criticized for encouraging reckless investor behavior. But regulators did probably avert a global financial crisis.

In this century, the recklessness shifted from emerging markets to the U.S. mortgage market. Many lenders put money where they had no business putting it.

And today again the world stands on the edge of a financial crisis, this one vastly more dangerous than that of a decade ago because the amounts of money at stake are so much greater.

Yet Washington hesitates to act. Treasury Secretary Henry Paulson and new Fed Chairman Ben Bernanke remember the criticism of their supposedly over-interventionist predecessors, Bob Rubin and Alan Greenspan.

They have no way of measuring that criticism against the criticism that would have rained down if Rubin and Greenspan had not acted and things had gone very badly wrong.

Policymakers seem to remember Long Term Capital Management as an example of what not to do. And so they are not doing it — risking perils greater than most of us yet understand.

RYSSDAL: David Frum is a resident scholar at The American Enterprise Institute.