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> Don't forget another thing the government did: previous bailouts. When large banks were told they were "too big to fail", they heard "your risks will be subsi
by 394549 8y ago
> Don't forget another thing the government did: previous bailouts. When large banks were told they were "too big to fail", they heard "your risks will be subsidized by taxpayers", so of course they took on more risk. We should have let the banks fail, if they really were going to.
Why couldn't the stockholders get wiped out when a TBTF bank gets bailed out?
To me, that seems like a fair compromise that protects the economy but still punished excessive risk taking.
- umanwizard 8y agoBecause there's no law allowing that currently, and Constitutionally you can't just make it up after the fact
- TheLoneAdmin 8y agoSure, there were plenty of laws allowing that. Bankruptcies happen every day, with plenty of legal framework. The depositors were all protected by FDIC.
- pitaj 8y agoYou don't need to bail out banks to protect the economy.
- docker_up 8y agoYes, you do. If they are by definition too big to fail, then them shutting down could cause runs on banks. When people's confidence in banks crashes, then very bad things happen to our financial system which is predicated on the idea of people keeping their money in banks and bank accounts. Even people pulling their money out of money market mutual funds almost caused a collapse of the monetary system, which is why the Fed had to secure those.
- jhayward 8y agoInstead of bailing out the banks, they could easily have simply been put in receivership, with Treasury as the recevier in control. Simply re-capitalize them from the federal reserve, and they don't have to miss a single hour's worth of operation. Unwinding the mess of CDOs, etc. would have been long and tiresome but, with a little help from a convenient executive order or two perfectly do-able.
- simonh 8y agoThere’s no law of nature that says this is always required, no. But I’m afraid in the situation the Fed found itself in back in 2008, there really was no other option without a much, much more severe recession. Governments had been massively over spending and actively promoting reckless lending, even legally mandating it in some cases with required ratios of low grade mortgages, for years. I personally know two people that cashed out tens of thousands of pounds here in the UK by remortgaging and spent it. Plenty of consumers were behaving ridiculously recklessly too. It was a crazy time, and businesses need banks. People need banks. Should your bank holding you accounts and mortgage have been allowed to fail? How about the bank financing your employer? How about both at the same time?
- docker_up 8y agoBear Stearns and Washington Mutual shareholders got wiped out. I know this because I lost tens of thousands of dollars, unfortunately.
- tedunangst 8y agoAIG stock declined something like 98%, which isn't great either.