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I understand the sentiment, and often feel this way too, but I think it's reductive to assume the answer is to let large companies/investors to fail. Ideally,

I understand the sentiment, and often feel this way too, but I think it's reductive to assume the answer is to let large companies/investors to fail. Ideally, if we ensure adequate diversity in the market, then having companies default makes sense -- then one company going under won't trigger a string of defaults that can cripple a sector of the economy. But when we let businesses concentrate effort or corner markets, then there can be catastrophic consequences to the economy when these large entities go belly up. Efforts should be put in place to mitigate these issues. Ultimately, I think the pragmatic approach is to assess defaulting on debt on a case-by-case basis. I'd prefer if a panel of economists across the ideological spectrum came to a consensus for each case based on the latest understanding of the market, but I know it's more likely going to be politicians choosing the argument that best fits their worldview.

mindslight 3y ago
I do agree that limiting scopes ahead of time would be a better overall solution. The problem is that for the next part of the cycle, when the idea of regulation to limit the financialization is being debated, it will be rejected because the immediate crisis is over. So I'd say it's appropriate to argue against the scheme at each turn, even though only one aspect needs to be reformed to have just system. Also, aiming for better outcomes would be more important for situations affecting resources in the real world. But commercial real estate has to be one of the most abstract setups there is. The buildings will still exist. The tenants will still exist, still carrying out their business, making rent payments, and for the most part keeping up the properties. The only thing that changes is the paper ownership moves to the senior debt holder, and the more leveraged investors get wiped out.
Geisterde 3y ago
This condition was created by the government selecting winners and losers in the first place. The market has to decide who wins and who loses to achieve any normal distribution of resources, otherwise it will always be captured by politicians and/or corporations. There can be no agreement among "economist across the ideological spectrum", there can only be agreement among economists who agree with bailouts, or agreement among economists who disagree with bailouts. We have directly opposing views on what makes something moral, on how value is created, even on what money is; there cant be any agreement when the differences in fundamental assumptions directly conflict. Naturally those against bailouts will be marginalized and called fringe kooks that can be safely ignored.

mindslight 3y ago

I do agree that limiting scopes ahead of time would be a better overall solution. The problem is that for the next part of the cycle, when the idea of regulation to limit the financialization is being debated, it will be rejected because the immediate crisis is over. So I'd say it's appropriate to argue against the scheme at each turn, even though only one aspect needs to be reformed to have just system. Also, aiming for better outcomes would be more important for situations affecting resources in the real world. But commercial real estate has to be one of the most abstract setups there is. The buildings will still exist. The tenants will still exist, still carrying out their business, making rent payments, and for the most part keeping up the properties. The only thing that changes is the paper ownership moves to the senior debt holder, and the more leveraged investors get wiped out.

Geisterde 3y ago

This condition was created by the government selecting winners and losers in the first place. The market has to decide who wins and who loses to achieve any normal distribution of resources, otherwise it will always be captured by politicians and/or corporations. There can be no agreement among "economist across the ideological spectrum", there can only be agreement among economists who agree with bailouts, or agreement among economists who disagree with bailouts. We have directly opposing views on what makes something moral, on how value is created, even on what money is; there cant be any agreement when the differences in fundamental assumptions directly conflict. Naturally those against bailouts will be marginalized and called fringe kooks that can be safely ignored.