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

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.