Please explain how the government is "stealing money" for the banks. That is completely absurd. Monetary policy keeps the system in check to stabilize the economy.
The government took money from people that were putting it to productive use and gave it to people that weren't. If they had allowed the banks to fail, their resources would have been auctioned off to the banks that didn't make poor decisions. Those banks would now be running the financial system, not the ones that destroyed it.
On the contrary, it encourages disfunction. "Let us remove the consequences of your failures." Gee, I wonder if that memory will make them so grateful that they'll be more careful next time? Sure. It's not like their whole industry is about predicting risks and rewards based on past experience.
Bah. The mistakes will be repeated and the bailout question will arise again. And it will be worse next time.
We should have had the guts to say "fail and die." It would have sucked, but not as much as crushing debt and a sequel.
You guys are hilarious with your chests puffed out screaming about death to the financial players who were in trouble. Have you considered the massive negative shock to liquidity that would have resulted?
Goldman Sachs, JPMorgan Chase etc. deal with an inordinate amount of the world's liquid assets. If they had failed, the problems wouldn't have been a few quarters of negative GDP growth--we could have seen the collapse of financial markets everywhere along with prolonged global depression. Should we have had the guts to deal with that too?
OK. What reason do the bailed-out institutions now have to avoid such irresponsible behavior in the future? Previously, they had "it might ruin us." Now?
If we've merely postponed this problem and are waiting for Round II, then yes, we should have had the guts to have a depression resulting from irresponsible investments rather than a depression resulting from irresponsible investments AND governments up to their nostrils in debt.
Perhaps not. But not everyone has their chests puffed up about this. As it stands, they were rewarded for taking excess risk and are doing it again. What should be done next time?
Let's speculate a bit more. There are two possible outcomes to letting a large bank/financial institution fail:
1. Financial institutions cannot transfer funds between each other as usual and they cannot accurately predict who might fail next, so they pull back credit access. Spreads blow up as money supply decreases, causing a sharp decline in equipment investment and a big rise in consumer interest rates. Shit gets worse from there.
2. Banks die and, in conflict with everything we know about liquidity, money continues to flow perfectly. Banks are not afraid of failure so credit flows freely.
What do you see as more likely? Can you sum it up in a one-word answer?
You're probably right - if they'd just been allowed to collapse we'd be in serious trouble.
However we're still in serious trouble because of the moral hazard created. Banks have been given the greenlight to take similar risks again because they know they'll be bailed out in future.
Frankly, without also taking steps to force banks back into smaller entities that we can afford to let fail, all we've done is compound the problem and delay it until later when it will be worse.
Is it better to force banks into smaller entities, exerting government control over the marketplace, or let their investors lose their pants when the banks take stupid risks, allowing the marketplace to correct itself?
Well personally, I'd prefer the latter, but if it really was going to crash the economy completely, then the former might be necessary. But the only point in forcing them into smaller entities would be so that in future they would be allowed to fail.
