3a. If fail, have taxpayer pay for it
That's the most disturbing part of all this: profits are kept private, but losses are socialized.
It's the equivalent of "heads, I win; tails, you lose".
That's the most disturbing part of all this: profits are kept private, but losses are socialized.
It's the equivalent of "heads, I win; tails, you lose".
When banks profit, society gets its share of those profits. Taxes, spending by the organization, spending by employees, their taxes. The government bailed out Detroit, why's this any different?
Taxes are not paid in exchange for bailouts... at least if they are tell that to all the other companies that have failed over the years and not had the government swoop in to help.
They are getting a subsidy to mindlessly arbitrage the yield curve and profit by making riskier loans than they would normally be capable of making. Fractional Reserve lending is NOT necessary for a financial intermediary to function. Look at hedge funds or VC firms. They are investing the amount of money they have received from investors and are not allowed to invest 10X they amount they have without raising that extra amount from somewhere.
Banks are not doing anything intelligent that adds significant value, the majority of their profits come from mindlessly arbitraging the yield curve due to a federal subsidy.
If i-banks like GS want to pay large salaries and bonuses to their employees, that is fine by me, as long as they also accept the negative consequences of the risks they take.
I'm also not a fan of the automobile bailouts; to paraphrase Plato, two bailouts do not make a right.
How does that make sense? Coercing the rest of us to take on debt so they can continue an enterprise that doesn't make economic sense?
You're absolutely right when you say there's no difference between subsidizing banks and auto companies. Both actions were wrong.
Here are some differences: - The bank bailouts are turning out to be at least a 100 times as expensive as the Detroit bailout. Detroit is not even worth mentioning in the same breadth as the banks.
- In the detroit bailout, most people that were responsible for the failure did not benefit. CEOs were sacked, all equity holders lost their money, debt holders lost most of their money too. In the bank case most people responsible kept their jobs and many of them are now back to getting multi million dollar bonuses (supported by government loans). Some banks wiped out their equity holders, some banks had only temporary drops in stock price. But pretty much all of the bank debt was guaranteed by the government.
But if the loans did not exist, many of these people would not be getting these bonuses either because their employers would not exist either, or because their employers would not have sufficient capital to generate the profits from which the bonuses come.
So yes, they would have gotten those bonuses regardless, and no, you can't say they would have failed without it.
Also, the bailout of AIG was really a bailout of Goldman. In other words, AIG got bailed out so that they could pay Goldman their enormous losses on securities that they bought from Goldman.
Know of any good reading on the consumer bank point?
You know what's REALLY too big to fail? Capitalism. And rewarding market failure is the surest way to take it down.
The media has made them into a scapegoat out of them in particular, and for some reason, everyone is following along.
And it should have been allowed to fail in my opinion. There would have been a lot of pain and other failures, but those are the risks of playing these games.
If you protect people from all of the ultimate costs of doing things that are rewarding in the short term most of the time, but incredibly risky overall, they will keep doing them!
And we will all pay a huge price for these parasites eventually if we don't wake up and stop subsidizing them.
I'm for criminal charges for those that committed fraud, investigations, more regulation, and so forth, but this "We should have let them crash and burn, damn the consequences" idea was not likely the best course of action, though it seems to be a pretty common attitude for some reason.
When you pick a vendor, a bank or insurance company, there's a chance that entity will fail. You're the one who has to judge that. It's not the government's job to protect you from failing to do that, especially when others took the time to assess the vendor and decided to use a more stable, smarter company.
And its certainly not the job of government to take the consequences from those that misjudged their bank or insurance company and assign those consequences to others that had nothing to do with the decision.
I am not "damning the consequences". The consequences are unavoidable. Its just a question of who should pay for them. Do we leave the consequences with those making the decisions that led to them? Or do we dump them off on everybody else?
This is not a zero-sum game within the US. Some courses of action have much larger consequences overall than others, and the one you are advocating seems likely to have had a relatively high overall cost to the system of the economy compared to the one the govt. chose, at least in the short term.
The government has been trying to keep the ship sailing as smoothly as possible, as is their general responsibility, despite the unsavory nature of bailing out some of those responsible. I believe that was viewed as a necessary evil.