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'Saving Wall street' was intended as 'saving the financial system'. A collapse of several banks/insurance companies would trigger a run on the remaining banks,

by 1gor 17y ago

'Saving Wall street' was intended as 'saving the financial system'. A collapse of several banks/insurance companies would trigger a run on the remaining banks, complete break-down of business lending, mass bankruptcies among non-financial companies, mass layoffs, civil unrest, sky-rocketing costs of servicing state debts, drop in foreign capital inflows, currency devaluation and likely default on government bonds leading to more misery. The crisis would be world-wide, affecting international trade and investment and well-being of billions. The costs of doing nothing would be enormous. Markets is a complex nonlinear system that can go into a state of positive feedback -- trouble would breed more trouble. So US central bank tried to stop this vicious circle from developing by preventing Wall street from collapsing. These measures may still fail, primarily because earlier the Fed did not do anything to prevent said positive feedback when markets and investment risk appetites were going up (also known as 'the bubble'). Populist soundbites on HN always surprise me.

va_coder 17y ago
Fear tactics on HN suprise me as well. Neither you or I know what would have happened if we didn't create massive amounts of debt. But to solve a problem that was largely caused by massive amounts of debt by creating more massive amounts sounds unwise to me.
- kgrin 17y ago
  Not to over-nitpick, but there's surely a difference between private and government debt. Not that public debt is a good thing by any means, but the trend of treating of the government as a "family" that needs to "live within its means" strikes me as pretty silly. (Just to be clear, I'm not accusing you of making that argument, but the conflation of private and public debt is along those same lines).
kgrin 17y ago
True enough RE: importance of saving the financial system, though there's plenty of room for debate about the best way to go about it. For instance: what should the government (read: taxpayers) get in return for their guarantees of these companies' debt? (As any other lender would!) I'm all for saving the financial system - but to the extent that we're socializing losses, it's importance to balance it by socializing some of the future gains as well (via stock, for example) - otherwise, we get into the sort of crazy loop where there are effectively unlimited guarantees for screwing up.

by 1gor 17y ago

va_coder 17y ago

Fear tactics on HN suprise me as well. Neither you or I know what would have happened if we didn't create massive amounts of debt. But to solve a problem that was largely caused by massive amounts of debt by creating more massive amounts sounds unwise to me.

kgrin 17y ago
Not to over-nitpick, but there's surely a difference between private and government debt. Not that public debt is a good thing by any means, but the trend of treating of the government as a "family" that needs to "live within its means" strikes me as pretty silly. (Just to be clear, I'm not accusing you of making that argument, but the conflation of private and public debt is along those same lines).

kgrin 17y ago

True enough RE: importance of saving the financial system, though there's plenty of room for debate about the best way to go about it. For instance: what should the government (read: taxpayers) get in return for their guarantees of these companies' debt? (As any other lender would!) I'm all for saving the financial system - but to the extent that we're socializing losses, it's importance to balance it by socializing some of the future gains as well (via stock, for example) - otherwise, we get into the sort of crazy loop where there are effectively unlimited guarantees for screwing up.