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"Let'em burn" with respect to "the banks" has been researched and cited as exacerbating the great depression[1]. I know there are folks legitimately concerned

"Let'em burn" with respect to "the banks" has been researched and cited as exacerbating the great depression[1]. I know there are folks legitimately concerned with moral hazard, and genuinely believe letting it all burn down would have been the better approach. I'm just glad they weren't in charge when everything went into a tail spin. I think it would have been a LOT worse for everyone. The Automaker bailout, in hindsight, seems like it was the better call than letting them fail. If they had failed, the surviving ones would have acquired all the valuable scrap on a fire-sale, expanded to fill the void and you'd probably have more or less the same auto industry today. But in the interim, a lot of people would have lost their jobs. So that's a LOT worse for some, and I honestly can't tell who wins but on aggregate I assume it's a wash. 1 - https://www.federalreservehistory.org/essays/great_depression https://www.federalreservehistory.org/essays/great_depressio...

maxerickson 9y ago
I think there is a legitimate question about how long the status quo can keep being propped up though. It is interesting how angry people get about the bank bailouts though, as if it was narrowly targeted at the owners of the banks and not targeted at preserving the entire economy.
zanny 9y ago
Except the great depression happened without FDIC insurance. It wouldn't be pretty, but nobody would have been destitute from a banking collapse. There are many more regulations put in place since the 30s to safeguard against the extraordinary degree of damage a collapse can have like that. Instead of a trillion dollar bailout that went to rich coffers (and most of which was paid back) we could have just thrown the money, mixed, into VC to replace the dead banks (as investment stake, that the government could have sold back later and recouped the costs all the same) and unemployment protection to keep the people temporarily put out of work during the restructuring from destitution. In that scenario, the robber baron crooks that should have been in prison don't get to waft off on golden parachutes paid with tax money.
hrez 9y ago
That was due to run on the banks before FDIC. So, yes, there was no reason to be saddled with moral hazard instead of orderly dismantling. Look at Lehman, Wamu etc.

maxerickson 9y ago

I think there is a legitimate question about how long the status quo can keep being propped up though. It is interesting how angry people get about the bank bailouts though, as if it was narrowly targeted at the owners of the banks and not targeted at preserving the entire economy.

zanny 9y ago

Except the great depression happened without FDIC insurance. It wouldn't be pretty, but nobody would have been destitute from a banking collapse. There are many more regulations put in place since the 30s to safeguard against the extraordinary degree of damage a collapse can have like that. Instead of a trillion dollar bailout that went to rich coffers (and most of which was paid back) we could have just thrown the money, mixed, into VC to replace the dead banks (as investment stake, that the government could have sold back later and recouped the costs all the same) and unemployment protection to keep the people temporarily put out of work during the restructuring from destitution. In that scenario, the robber baron crooks that should have been in prison don't get to waft off on golden parachutes paid with tax money.

hrez 9y ago

That was due to run on the banks before FDIC. So, yes, there was no reason to be saddled with moral hazard instead of orderly dismantling. Look at Lehman, Wamu etc.