The “systemic risk” argument for a taxpayer bailout of the financial entities who made massive amounts of money during the run-up, and have yet to be jailed and have those assets stripped and used as compensation for their vicims… As long as insured deposits are saved (FDIC, Treasuries, and perhaps SIPC), exactly why will failing banks cause a depression any more than if we spend trillions of dollars bailing them out? Whether we lose the trillions as they fail, or lose the trillions as we default on our federal debt, we lose. If they fail, stronger, better-capitalized banks and lending institutions will replace them, no? Besides, we need fewer lenders, because we need to have less debt.
It’s high time the FIRE industry took a back seat to the real economy. We need to focus on the middle class, and do what’s right for the country as a whole, not what’s best for Wall Street and Washington D.C. They have destroyed enough already.
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I have no problem with zeroing out the common, preferred and parts of the debt structure of these huge banks that are on the brink. (That would be “almost” like allowing them to fail.) I’ve got no financial or emotional attachment to their survival, per se. But, as I’ve said before, I don’t want to do it all at once because of the enormous business disruption it would cause and the impact it would have on the real economy. But that’s just me. These banks are so huge, unfortunately, that I think it would take quite some time for the “stronger, better-capitalized banks to fill the lending void.” I actually think we need MORE lenders as opposed to fewer lenders. But we need all these lenders, in aggregate, to do less lending. More lenders, less concentration, less systemic risk. Part of the problem is that we’ve allowed a handful of banks to get too large. And these banks happen to have the most leverage and (among the) riskiest assets.
As to your last paragraph, I agree. But the devil’s in the details in terms of getting from A to B.
