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You don't need to bail out banks to protect the economy.

• docker_up 8y ago
  Yes, 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 ago
    Instead 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 ago
  There’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?