Politics: Bailout is a cure worse than the disease
Posted in Uncategorized with tags bailout, TPM on September 30, 2008 by Billy DennisConservative Republicans aren’t the only ones criticizing the $700 billion bailout. Lefty blog TPM is running this lucid commentary:
The basic argument for the bailout is that the banks are filled with so much bad debt that the banks can’t trust each other to repay loans. This creates a situation in which the system of payments breaks down. That would mean that we cannot use our ATMs or credit cards or cash checks.
That is a very frightening scenario, but this is not where things end. The Federal Reserve Board would surely step in and take over the major money center banks so that the system of payments would begin functioning again. The Fed was prepared to take over the major banks back in the 80s when bad debt to developing countries threatened to make them insolvent. It is inconceivable that it has not made similar preparations in the current crisis.
In other words, the worst case scenario is that we have an extremely scary day in which the markets freeze for a few hours. Then the Fed steps in and takes over the major banks. The system of payments continues to operate exactly as before, but the bank executives are out of their jobs and the bank shareholders have likely lost most of their money. In other words, the banks have a gun pointed to their heads and are threatening to pull the trigger unless we hand them $700 billion.
In other words, let the system run it’s course. There will be some suffering, but the mechanisms already in place will keep us out of the 2nd Great Depression that we’ve been warned about.
Frankly, I think a little suffering just might be the lesson we need to teach us the folly of interference in the free market for the purpose of establishing economic parity among citizens.
