Bailouts for Banks: Unjust and Very Expensive
Vern McKinley & Gary Gegenheimer | Cato Institute | April 2009
In
an attempt to control the economic crisis and stabilize global financial
institutions, the world has quickly become tied up with billions of dollars in
bailout packages. In the meantime it
seems things are almost back to normal, even though experts continue warning
about the risks of financial spread sheets of large banks. The US is by far the most entangled in
bailout plans. The Cato Institute claims that this financial help is unjust,
extremely expensive, inconsistent and not transparent.
The justification for the bailout of the financial sector lacks clear
definition as well as transparent and justifiable political conviction. Furthermore,
the fear still exists that the basic inadequacies that caused the outbreak of
the crisis remain in the system. Three important institutions are taking center
stage in the bailout: the US Federal Reserve, the US Treasury and the Federal
Deposit Insurance Corporation. It would be better if these organizations
concentrated on their main tasks, for example the Federal Reserve should
concentrate on the control of the money supply. The only solution, as seen by
the Cato Institute, is to place financially troubled institutions into
receivership or let them plunge into insolvency. The present approach is the
wrong one: large banks will be saved, but will perpetuate risks in the entire system.
Therefore, it is as if the next crisis is predetermined.
Without
state support a large number of financial institutions would not have been able
to overcome the crisis. In the worst case, they would have filed for bankruptcy
or gone bust a long time ago. If they had, credit lines for businesses would be
further impaired with even greater long-lasting effects than is now the case.
For the economy of the US
and other affected countries the massive bailouts will surely be a mixed
blessing.
This summary was prepared by the Atlantic Community editorial team from "Bright Lines and Bailouts," published here by Cato Institute, April 2009.
Fri, May 22nd 2009, 06:03
Larry
Letting them go insolvent would have been the best way out of this mess. The bailout money could have been used to provide credit to those who deserve it and like it or not much regulation will be in order to control the robber barons and other predators.
Seems our leaders have chosen relatively less pain over a longer period by rewarding these criminals.