5 ms·

I can't help but wonder how much of this would have been fixed by letting them fail. This is way out of my ballpark, but it still bothers me a lot that they don

by Pigo 9y ago

I can't help but wonder how much of this would have been fixed by letting them fail. This is way out of my ballpark, but it still bothers me a lot that they don't face the same consequences I do for making mistakes.

turk184 9y ago
Exactly right. There has to be real consequences or else you get what we have right now which are these entities that are so powerful they can shift accountability away from themselves and thereby socialize all their losses while profiting to the tune of hundreds of billions of dollars.
laurent123456 9y ago
Iceland let its banks fail and protected the taxpayers, and a few years later the economy recovered just fine. It's at a much smaller scale than the US or EU economy though, but still.
- Tyrek 9y ago
  It's entirely unfair to use 'but still' as any sort of argument here. Iceland is not a large chunk of the world economy, nor does it have a premier position as the world's economic nexus to protect. It's well documented that cause/effect differs as your economy scales (just look at how behavior changes between a small startup vs a unicorn). While there might be some valid arguments for letting the banks fall, 'someone else did it and it worked' is not one of them.
  - nugget 9y ago
    Humans and their systems are very resilient. Personally I would have let a lot of the weaker US financial institutions fail after Lehman. It would have been much more painful in the short term, but I bet we'd be in a healthier recovery period now. Granted I understand why the Fed did what they did. The European equivalent is letting Portugal, Greece, Italy, and Spain go bankrupt, which could cause serious, irreversible structural problems...on that one, I'm not sure what I would have done.
  - notahacker 9y ago
    Yeah, Iceland couldn't have pumped in enough money to keep the banks solvent because of the size of their balance sheets relative to its economy but they still made comparably significant interventions to protect domestic creditors.
  - jessaustin 9y ago
    It's unfair to compare the differing results of different national policies? What other option do we have? Should we just swallow the whole bill of goods that Hank Paulson drops on our desk, the same way that Bush the Lesser did? You probably don't think we should look to e.g. Portugal to see alternatives to the drug war, either. It's a funny sort of exceptionalism, to imagine that we can only learn from similar-sized nations. Would that be Brazil and Indonesia?
    - Tyrek 9y ago
      That's the whole basis of social science. As much as HN shits on social science for being unverifiable, the entire point of the domain is that some things (namely, economic understanding) are not verifiable through observation and comparison. The only way to really understand potential impacts are through economic concepts and modelling. Sure, there is plenty of bias thrown in, but there's also a million different economic models to choose from. There's a lot of noise, and it actually takes specialized knowledge and domain expertise to wade through all of it. I don't get why there's the misapprehension that economics is inherently intuitive.
      - jessaustin 9y ago
        The social science you're describing is not the same as that I learned at university. Maybe it doesn't often admit experimentation, but it sure as hell uses observation and comparison. In fact you're sort of insulting economists here, implying that they practice a sort of solipsistic philosophy. Lots of them really deserve it, but still! The secret unacknowledged religious dogma you might not even know you've swallowed (although golly are Goldman glad you did!) is the proposition that banks are difficult to replace. This notion is preposterous on its face (which is why no one ever says it out loud) because of course anyone who owns capital is quite capable of purchasing financial instruments with that capital. If they weren't, they wouldn't own it in the first place. In the absence of "bailouts", there might have been some temporary confusion as legitimate profitable uses of capital switched from the old banks to the new (and presumably as the new bankers upgraded their executive suites to the level of opulence required in their new positions), but the history of recessions in 19thC USA makes clear that when we just let weak banks fail, the economy quickly recovers.
  - laurent123456 9y ago
    It's not the same but it shows it can be done, that letting the banks fail doesn't necessarily translate to economic collapse. If the Iceland economy had collapsed there would be a case that bailing out the banks was the right decision, but as it is there's no clear proof. Bailing them out lead to all kind of problems too. 8 years later the economy hasn't quite recovered, and in the meantime the lack of trust caused by all this gave us Trump, Brexit, etc. I guess we can't really know what would have happened if these banks had failed, but the alternative is definitely not great.
  - eli_gottlieb 9y ago
    >It's entirely unfair to use 'but still' as any sort of argument here. Iceland is not a large chunk of the world economy, nor does it have a premier position as the world's economic nexus to protect. A "premier" position based on bullshit ain't so premier.
- jcranmer 9y ago
  Iceland effectively did bail its banks out, but only bailed them out for domestic depositors and screwing foreign creditors and depositors, which had severe foreign policy effects on Iceland.
  - jessaustin 9y ago
    More severe than electing the current USA president? "Foreign policy effects" actually are size-dependent.
graedus 9y ago
Or, bail them out (emergency liquidity, QE1, etc) but also nationalize them at least on a temporary basis so that as they recover, the profits do not go to private pockets but rather are socialized.
- Pigo 9y ago
  Not that I've researched it, but I've read the auto manufacturers turned things around and repaid the bailout because they are in the business of producing things. It seems like the business of banking has it's own culture, if we don't recognize what they're about and say no next time I will be out rioting.
- specialist 9y ago
  I'd be satisfied with dissolution.

by Pigo 9y ago

turk184 9y ago

Exactly right. There has to be real consequences or else you get what we have right now which are these entities that are so powerful they can shift accountability away from themselves and thereby socialize all their losses while profiting to the tune of hundreds of billions of dollars.

laurent123456 9y ago

Iceland let its banks fail and protected the taxpayers, and a few years later the economy recovered just fine. It's at a much smaller scale than the US or EU economy though, but still.

Tyrek 9y ago
It's entirely unfair to use 'but still' as any sort of argument here. Iceland is not a large chunk of the world economy, nor does it have a premier position as the world's economic nexus to protect. It's well documented that cause/effect differs as your economy scales (just look at how behavior changes between a small startup vs a unicorn). While there might be some valid arguments for letting the banks fall, 'someone else did it and it worked' is not one of them.
- nugget 9y ago
  Humans and their systems are very resilient. Personally I would have let a lot of the weaker US financial institutions fail after Lehman. It would have been much more painful in the short term, but I bet we'd be in a healthier recovery period now. Granted I understand why the Fed did what they did. The European equivalent is letting Portugal, Greece, Italy, and Spain go bankrupt, which could cause serious, irreversible structural problems...on that one, I'm not sure what I would have done.
- notahacker 9y ago
  Yeah, Iceland couldn't have pumped in enough money to keep the banks solvent because of the size of their balance sheets relative to its economy but they still made comparably significant interventions to protect domestic creditors.
- jessaustin 9y ago
  It's unfair to compare the differing results of different national policies? What other option do we have? Should we just swallow the whole bill of goods that Hank Paulson drops on our desk, the same way that Bush the Lesser did? You probably don't think we should look to e.g. Portugal to see alternatives to the drug war, either. It's a funny sort of exceptionalism, to imagine that we can only learn from similar-sized nations. Would that be Brazil and Indonesia?
  - Tyrek 9y ago
    That's the whole basis of social science. As much as HN shits on social science for being unverifiable, the entire point of the domain is that some things (namely, economic understanding) are not verifiable through observation and comparison. The only way to really understand potential impacts are through economic concepts and modelling. Sure, there is plenty of bias thrown in, but there's also a million different economic models to choose from. There's a lot of noise, and it actually takes specialized knowledge and domain expertise to wade through all of it. I don't get why there's the misapprehension that economics is inherently intuitive.
    - jessaustin 9y ago
      The social science you're describing is not the same as that I learned at university. Maybe it doesn't often admit experimentation, but it sure as hell uses observation and comparison. In fact you're sort of insulting economists here, implying that they practice a sort of solipsistic philosophy. Lots of them really deserve it, but still! The secret unacknowledged religious dogma you might not even know you've swallowed (although golly are Goldman glad you did!) is the proposition that banks are difficult to replace. This notion is preposterous on its face (which is why no one ever says it out loud) because of course anyone who owns capital is quite capable of purchasing financial instruments with that capital. If they weren't, they wouldn't own it in the first place. In the absence of "bailouts", there might have been some temporary confusion as legitimate profitable uses of capital switched from the old banks to the new (and presumably as the new bankers upgraded their executive suites to the level of opulence required in their new positions), but the history of recessions in 19thC USA makes clear that when we just let weak banks fail, the economy quickly recovers.
- laurent123456 9y ago
  It's not the same but it shows it can be done, that letting the banks fail doesn't necessarily translate to economic collapse. If the Iceland economy had collapsed there would be a case that bailing out the banks was the right decision, but as it is there's no clear proof. Bailing them out lead to all kind of problems too. 8 years later the economy hasn't quite recovered, and in the meantime the lack of trust caused by all this gave us Trump, Brexit, etc. I guess we can't really know what would have happened if these banks had failed, but the alternative is definitely not great.
- eli_gottlieb 9y ago
  >It's entirely unfair to use 'but still' as any sort of argument here. Iceland is not a large chunk of the world economy, nor does it have a premier position as the world's economic nexus to protect. A "premier" position based on bullshit ain't so premier.
jcranmer 9y ago
Iceland effectively did bail its banks out, but only bailed them out for domestic depositors and screwing foreign creditors and depositors, which had severe foreign policy effects on Iceland.
- jessaustin 9y ago
  More severe than electing the current USA president? "Foreign policy effects" actually are size-dependent.

graedus 9y ago

Or, bail them out (emergency liquidity, QE1, etc) but also nationalize them at least on a temporary basis so that as they recover, the profits do not go to private pockets but rather are socialized.

Pigo 9y ago
Not that I've researched it, but I've read the auto manufacturers turned things around and repaid the bailout because they are in the business of producing things. It seems like the business of banking has it's own culture, if we don't recognize what they're about and say no next time I will be out rioting.
specialist 9y ago
I'd be satisfied with dissolution.