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>bailouts as a failure of capitalism It's not bailouts that are the failure of capitalism. It's the conditions that bailouts ameliorate that are the failure. N
by mtviewdave 12y ago
>bailouts as a failure of capitalism
It's not bailouts that are the failure of capitalism. It's the conditions that bailouts ameliorate that are the failure. Namely that the process of destruction that takes down "losers" can, in some cases, destroy "winners" as well.
The best example of this is the "banking panic" (which is what we had in 2008):
http://en.wikipedia.org/wiki/Bank_run http://en.wikipedia.org/wiki/Bank_run
Because all fractional-reserve banks require customer confidence in order to operate, if customers lose confidence in the banking system as a whole, that loss of confidence will destroy even healthy banks.
- hardcandy 12y agoFDIC insurance was never questioned in 2008 and therefore customer confidence/common depositors were never threatened. Investors who had purchased toxic assets were threatened. Banks who held toxic assets on their balance sheets were threatened. Bankruptcy would have been extremely painful for everyone, but it would have punished the losers and rewarded a new generation of risk takers. It also would have led to a stronger recovery than what we have now, which is a zombie-like market controlled by central bank monetary policy and disconnected from free floating macro economic conditions.
- jgalt212 12y agoThat may be true in sense there wasn't a classic Bank Run on banks, but there was a classic Bank Run on Money Market funds.