This is absurd. Regulating private companies' compensation? Instead, the government should either make sure companies don't get "too big to fail", or make it very clear that banks don't have the Geithner Put option.
Simple and unobtrusive.
Simple and unobtrusive.
Corporations exist due to government enforced contracts, so I find no problem with government deciding to regulate certain markets in order to prevent total collapse of the economy.
A Geithner Put essentially means the banks could take enormous risk because they, simply put, bought a put option the government (with Geithner as analogical proxy) wrote on their bets going south. That is to say, the downside of taking a huge risk was covered by taxpayers with the bailout (= exercise price of a put), and the upside (that compelled the banks to take such risks) was even more appealing with limited losses the put option ensured.
It's kind of a tongue-in-cheek way of saying that the banks were insured against collapse via TARP.
Exactly. And the best way to do that? Never bail them out.
Even if it destroys the economy for everyone?
Never bail them out.
The problem isn't a temporary, transitory state - it's a systemic design flaw in a system filled with rogue actors.
Without the possibility of a bailout, if, say, Citbank went under, this would not only screw Citibank’s depositors—most of whom were hardly in a position to audit Citibank’s books before opening their accounts—but also every bank that had loaned money to Citibank. If a bunch of people who deposited money with Citbank owe money to Wells Fargo, then Citibank’s failure hurts Wells Fargo. And if Citibank’s failure led the depositors at Bank of America to get nervous and withdraw their money, then BoA would be at risk even if it had been prudently managed up until the crisis. And then BoA’s and Wells Fargo’s creditors... etc., etc., etc.
That all beeing said in a system where you have fractional reserve banking (witch is a bad idea anyway) there is a case (not one that I totally agree with) to be made that we need a "lender of last resort". But beeing a "lender of last resort" is quite diffrent then what the fed did. They literly flooded the hole bankingsystem with cash, knowbody knew what was going on, how will be saved who want, witch banks acctully are still liquid and witch will bust when the flow of cash stops. Why should banks lend to each other if the get free money. If I would get free money, I too would just sit around and wait until the worst is over. If every body does that we acctully have a bigger problem a long rescession instead of a short crash.
If bank A goes bad, institution B might have sold lots of CDS on bank A, requiring it to pay out more than it is able, so it goes under. Institutions C and D might have sold CDS on institution B, etc.
We should bail them out and then imposse serious penalties and regulations. Sadly we didn't do that.
De facto you can decide to trust the government you were voting for or against - and me being from Euroland, I rather trust that they don't fuck up too big for important decisions like that. I know this is different in the USA.
But, the point isn't so much whether it was all right or wrong, the more important (and frustrating) point is that WHAT they did wasn't done very diligently because at the end of the day, bailout billions were passed out practically for free and nothing changed.
The question whether it was right or wrong to intervene is more a philosophical question and how much it has compromised the very foundations of our value system and economy: free market and capitalism.
>The question whether it was right or wrong to intervene is more a philosophical question and how much it has compromised the very foundations of our value system and economy: free market and capitalism.
That's all great - and I agree with your points, but the original point was "It wouldn't have destroyed the economy for everyone."
We simply do not know that - maybe, if the bailout hadn't happened, the economy would have plunged into a severe depression.
Why is this?
Do people assume we are Republicans?
I am not a Republican.
I am not a fan of Fox News.
I am a fan of fairness, and after exhaustive study of economics it seems plain to me that the road to fairness is through free markets.
So the only way to get in a situation where it is an option to never bail them out? It is to keep the sizes small.
That sounds obtrusive. Not that it's wrong, but it is obtrusive.