[quote=gandalf]If the banksters had gone down, especially the big ones, our money goes with them. Actually, and here’s the rub, they’ve lost a good deal of it already, obligations they can’t pay, hence the bailout.
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What should have happened other than the bailout?[/quote]
gandalf,
A good, honest question. I have several answers:
1) if the banks had not known that they would get bailed out, if they had no hope of being backstopped by the government, they would not have assumed so much risk in the first place. This is a classic “moral hazard” situation, right ? You can say what you want about regulation, but really the existence of backstopping forces put us in the situation in the first place. The banks should be punished for relying on it.
2) Our money would not go with them. The FDIC would take care of that, to a large extent.
3) Receivership is the real answer. The banks go bad, land in the goverment hands, and get sold off to the highest bidder.
4) Banks who weren’t stupid take over lending, or new banks form, funded by investors who weren’t stupid. Takes some time to get this rolling, but if government money went to fund the creation of new banks or fund the growth of small banks who were responsible instead of keeping the old ones alive, we’d be in a better place now, for sure.
Ralphs may have to seek different funding sources for a while, and may have to cut back on their inventory, but they would learn to choose their banks more wisely. Now, they have learned nothing and are still relient on banks who really are not that sound. Are they in a better place ? Not really.
5) We learn to be less relient on massive amounts of debt.
The Q is – do you want to continue to rely on banking institutions which are so unsound that they would have collapsed without a bailout ? Or do you want to have available to you a stronger breed of bank who weathered the recent storm on their own ?
