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Please explain how the government is "stealing money" for the banks. That is completely absurd. Monetary policy keeps the system in check to stabilize the econo

by med555 16y ago

Please explain how the government is "stealing money" for the banks. That is completely absurd. Monetary policy keeps the system in check to stabilize the economy.

rbarooah 16y ago
How does a massive bail out 'keep the system in check'?
- billybob 16y ago
  On the contrary, it encourages disfunction. "Let us remove the consequences of your failures." Gee, I wonder if that memory will make them so grateful that they'll be more careful next time? Sure. It's not like their whole industry is about predicting risks and rewards based on past experience. Bah. The mistakes will be repeated and the bailout question will arise again. And it will be worse next time. We should have had the guts to say "fail and die." It would have sucked, but not as much as crushing debt and a sequel.
  - mdda 16y ago
    Exactly. GM should be dead by now.
  - achompas 16y ago
    You guys are hilarious with your chests puffed out screaming about death to the financial players who were in trouble. Have you considered the massive negative shock to liquidity that would have resulted? Goldman Sachs, JPMorgan Chase etc. deal with an inordinate amount of the world's liquid assets. If they had failed, the problems wouldn't have been a few quarters of negative GDP growth--we could have seen the collapse of financial markets everywhere along with prolonged global depression. Should we have had the guts to deal with that too?
    - rbarooah 16y ago
      Perhaps not. But not everyone has their chests puffed up about this. As it stands, they were rewarded for taking excess risk and are doing it again. What should be done next time?
    - chopsueyar 16y ago
      Speculation.
      - achompas 16y ago
        Let's speculate a bit more. There are two possible outcomes to letting a large bank/financial institution fail: 1. Financial institutions cannot transfer funds between each other as usual and they cannot accurately predict who might fail next, so they pull back credit access. Spreads blow up as money supply decreases, causing a sharp decline in equipment investment and a big rise in consumer interest rates. Shit gets worse from there. 2. Banks die and, in conflict with everything we know about liquidity, money continues to flow perfectly. Banks are not afraid of failure so credit flows freely. What do you see as more likely? Can you sum it up in a one-word answer?
        rbarooah 16y ago
        You're probably right - if they'd just been allowed to collapse we'd be in serious trouble. However we're still in serious trouble because of the moral hazard created. Banks have been given the greenlight to take similar risks again because they know they'll be bailed out in future. Frankly, without also taking steps to force banks back into smaller entities that we can afford to let fail, all we've done is compound the problem and delay it until later when it will be worse.
        billybob 16y ago
        Is it better to force banks into smaller entities, exerting government control over the marketplace, or let their investors lose their pants when the banks take stupid risks, allowing the marketplace to correct itself?
richcollins 16y ago
The government took money from people that were putting it to productive use and gave it to people that weren't. If they had allowed the banks to fail, their resources would have been auctioned off to the banks that didn't make poor decisions. Those banks would now be running the financial system, not the ones that destroyed it.

by med555 16y ago

Please explain how the government is "stealing money" for the banks. That is completely absurd. Monetary policy keeps the system in check to stabilize the economy.

rbarooah 16y ago

How does a massive bail out 'keep the system in check'?

billybob 16y ago
On the contrary, it encourages disfunction. "Let us remove the consequences of your failures." Gee, I wonder if that memory will make them so grateful that they'll be more careful next time? Sure. It's not like their whole industry is about predicting risks and rewards based on past experience. Bah. The mistakes will be repeated and the bailout question will arise again. And it will be worse next time. We should have had the guts to say "fail and die." It would have sucked, but not as much as crushing debt and a sequel.
- mdda 16y ago
  Exactly. GM should be dead by now.
- achompas 16y ago
  You guys are hilarious with your chests puffed out screaming about death to the financial players who were in trouble. Have you considered the massive negative shock to liquidity that would have resulted? Goldman Sachs, JPMorgan Chase etc. deal with an inordinate amount of the world's liquid assets. If they had failed, the problems wouldn't have been a few quarters of negative GDP growth--we could have seen the collapse of financial markets everywhere along with prolonged global depression. Should we have had the guts to deal with that too?
  - rbarooah 16y ago
    Perhaps not. But not everyone has their chests puffed up about this. As it stands, they were rewarded for taking excess risk and are doing it again. What should be done next time?
  - chopsueyar 16y ago
    Speculation.
    - achompas 16y ago
      Let's speculate a bit more. There are two possible outcomes to letting a large bank/financial institution fail: 1. Financial institutions cannot transfer funds between each other as usual and they cannot accurately predict who might fail next, so they pull back credit access. Spreads blow up as money supply decreases, causing a sharp decline in equipment investment and a big rise in consumer interest rates. Shit gets worse from there. 2. Banks die and, in conflict with everything we know about liquidity, money continues to flow perfectly. Banks are not afraid of failure so credit flows freely. What do you see as more likely? Can you sum it up in a one-word answer?
      - rbarooah 16y ago
        You're probably right - if they'd just been allowed to collapse we'd be in serious trouble. However we're still in serious trouble because of the moral hazard created. Banks have been given the greenlight to take similar risks again because they know they'll be bailed out in future. Frankly, without also taking steps to force banks back into smaller entities that we can afford to let fail, all we've done is compound the problem and delay it until later when it will be worse.
        billybob 16y ago
        Is it better to force banks into smaller entities, exerting government control over the marketplace, or let their investors lose their pants when the banks take stupid risks, allowing the marketplace to correct itself?

richcollins 16y ago

The government took money from people that were putting it to productive use and gave it to people that weren't. If they had allowed the banks to fail, their resources would have been auctioned off to the banks that didn't make poor decisions. Those banks would now be running the financial system, not the ones that destroyed it.