Ilya, citing a column by Steven Landsburg, asks why a bailout is necessary. In Landsburg’s words, “Just because the banks disappear doesn't mean the lenders will. Borrowers will still want to borrow and lenders will still want to lend. The only question is whether they'll be able to find each other.” That’s the question and the problem with answering the question is that no one knows the answer. History suggests, however, that the probability they won’t “find each other” is not zero; let’s call it one percent. If there is a one percent chance that the current financial meltdown causes a catastrophic outcome—not just people out of work and the reduction in the standard of living, but predictable bursts of xenophobia, beggar-thy-neighbor policies, global political instability, and all the rest—how much should the government do to prevent that from happening and at what cost? Does this question sound familiar? What about the government’s answer?
All Related Posts (on one page) | Some Related Posts:
- The Bailout and the Market:
- Does the Stock Market Fall Prove that the Bailout Would have Been Worth it? - Round II:
- Poof!...
- Do Low-Probability Catastrophic Risks Justify the Bailout?
- The One Percent Doctrine and the Financial Meltdown.
- A Simple Argument Against the Bailout:
- Gary Becker's Doubts About the Wisdom of the Bailout:
- Crony Capitalism:
P.S. It seems pretty silly to suggest that modern financial systems might be entirely unnecessary, rendered superfluous by the interwebs. I think we do know the answer to that question.
Not an economist, just speculating here.
Maybe we need to pick and choose who we bail out.
I agree with you in principle, but in practice, I think the government is needed to help wind down this crises slowly and let the losses take place as they need to.
Landsburg iz idiot. if Amerika haz no bank no one get cheezeburger and ur gonna lose ur bucket. Srsly, try to do ipo with no IB and terrorists will be in ur basez shootin ur doodz. Government bailouts iz in ur financial system stealin ur dollars but still need bank. Even cats know.
Our economy runs on liquidity. When it is reduced, as it has been lately, transactions that would have been done are not done. We have seen a lot of this in the last year.
I'm not saying that the currently proposed bail out is the right thing to do, but I am an advocate of the government doing quite a lot to keep the wheels from coming off.
Paulson is chinaman, he does not care about America.
Nothing like a little financial panic to bring out the nuts who think FDR caused the past panic.
Sheesh.
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