re: Would We Have Been Better Off If The Gov't Let The Banks Bottom Out, Not Bailing Em Out?

Yes. that's how the system is supposed to work. Instead of letting the investors in the banks who didn't pay close enough attention to what they were investing in feel the pain, we stole money from future tax payers to make the problem go away. Pain is often necessary for us to learn lessons like maybe you can't trust ratings that are paid for by the companies being rated.

quote:

---

I'm not too schooled on what happened during this other than constantly hearing my dad talk shite about Fannie and Freddie and getting pissed about Barney Frank.

---

Basically if our government didn't have their hand in the cookie jar too there would have probably been criminal charges brought. But part of why it was so big is that so many people were busy looking the other way.

As usual, LSURussian is right about the bailout money. The vast majority was paid back with interest.

The problem I have, is that we essentially did two things.

1) We set the "too big to fail" precedent. We showed that we will socialize losses (in the short term at least) but privitize gains. In line with that, we showed that companies can, for the most part, do whatever they want, and if they are a big enough part of the economy, we will bail them out.

We have created a significant moral hazard, and we didn't actually fix anything. We still have bubbles.

2) We allowed the govt to pick winners and losers. We propped up Citibank, but allowed Lehman to fail. I will never understand that.

If the govt had not gotten involved, it would have been very, very, very bad. But the bubbles would all be popped, and after 5 years of awfulness, we would have been much better off. Housing prices would now be much more in line with personal income. Lending practices would be sane. We would probably not have this college loan bubble.

We also have created a culture where people care more about what the balance sheet says verses what's really there.

See First NBC's collapse. Essentially robbing peter to pay Paul and show a fat balance sheet when in reality all you had was a bunch of promissory notes that were reading as assets on the books. In reality there was no liquidity.

Irresponsible, poor investing, and greed caused the bank crash.

quote:

---

Don't forget the auto industry.

---

The Feds loaned money to big auto when the lending market dried up. I don't have a problem with the loans.

They "gifted" the UAW millions and millions of dollars from taxpayers because they were a political ally to Obama. That money is never coming back. I can't get over that. I cashed out my 401k to pay rent while those retired UAW frickers didn't even have to take a haircut.

I'll probably never get over that.

Bingo. They were essentially on both sides of the transaction wth the tax credits. You just can't do that. It seems so easy to understand that you wonder how no one noticed it. It's all due to convoluted balance sheets

I wonder how much the Mannings lost? His New Orleans good ole boy network will save him.

My biggest thing with all this is, isn't our economy supposed to be founded on free market capitalism? So some businesses fail and some thrive. I know that there is some truth and some falseness in that statement, most likely, but what the government did seems to me to have gone pure socialist on the problem.

Ponder this.

If all those banks had failed, the FDIC didn't have the ability to back up all the funds. So you, the customer, go to get a $100 out there f the ATM. The ATM says, this bank is out of business, no money will be available, sorry.

Could you imagine the anarchy?

quote:

---

I understand that, but to me, that's a horrible approach to that kind of problem and that's not the way that the American economy is supposed to work. Businesses fail and businesses succeed. It's not the government's place to pick and choose who fails and who succeeds. It's on the consumer.

---

I am a pretty big free market guy, but markets (and consumers) are not always rational. Bank runs and consumer credit collapsing are classic examples. It's a prisoner's dilemma for the consumer. That's where the government can (and sometimes should) step in. Where to draw that line of stepping in is the trick (and the source of many of our political disputes).

They were desperately trying to fix a broken system run rampant with greed and cirruption, all while trying not to make 1/8 of the nations bank accounts disappear.

It would have sent the country into a depression which would have a larger impact globally than it did in the 20's

The bailouts could have been handled differently than they were. I'm typically very fiscally conservative and want very little government regulation where I put my money, BUT I'm all for the government watching over these guy's shoulders. Too much was risked with the old ways of doing things.

quote:

---

Iceland let the banks fail, prosecuted the bankers, and bailed out the depositors. Their unemployment rate peaked at 6.3%.

---

Could this absolutely not have worked here?