What if We Let Banks go Under?

The U.S. government has decided to bail out banks and the Wall Street manipulators to the tune of $700 billion. That’s about the amount of the already enormous Pentagon budget. The American middle class will of course be paying most of this tab. Do not expect the already rich to contribute very much to this outrageous move. It will be taken out of all of us. Expect the educational system to decline even further, the health system, which is already the most expensive and one of the worst in the world to further deteriorate and to become even less affordable. You can also fully expect that our transportation infrastructure, including highway bridges and the already sub-standard passenger rail network to be further neglected. At least we can hope that the insane suggestions to privatize Social Security – meaning putting Wall Street as its trustee will not be put forth in the near future.

What we basically have here is socialism applied to the corporations, but not to individual citizens, who do not have viable health care, or a viable transportation system. As a matter of fact, President Bush has said that he would veto a bill providing an additional $10 billion to Amtrak. Funny that he has absolutely no problem in providing $700 billion to Wall Street, or to fund the senseless wars that he has started.

Take a look at our earlier post on this subject

But why are we investing such an enormous sum to bail out banks, who have ended up with bad loans, loans, which were for the most part given out irresponsibly to people, who’s ability to repay them was not even properly checked?

In fact the dissolution of the insolvent parts of the U.S. banking sector – the investment banks, the money-center banks, the regional banks – would actually be a very positive development.

A huge number of these lenders are insolvent. If all of their bad loans, bad derivative bets and off-balance sheet losses were forced to be sent to market and liquidated in order to raise capital, then bank after bank would fold.

And what exactly would be so bad about that? Businesses go under all the time. The truth is these banks will never recover the loans they wrote, so why even try to prop them up with taxpayer funds? To bail out the ultra-rich owners of those banks, of course.

If we are to have socialism – which in fact the supposedly conservative Bush administration, which has in fact killed capitalism on September 19, 2008, is implementing – maybe the U.S. government should buy some companies which are actually profitable, such as Exxon/Mobil, instead of failed and largely useless investment mills?

The Federal Reserve Board of Governors is the part of the Federal Reserve System that is responsible for supervising the private banks. Lets not forget that this is not a strictly federal agency, but one composed of private bankers. And if one of the Fed’s responsibilities is defined as supervision of private banks, how could we expect this fox in the hen house scenario to actually work?

What is really annoying about all of these bailouts is that once the crisis passes, the financial industry goes back to business as usual. Wall Street returns to devising complex, incomprehensible “products” that produce the seeds of the next crisis. Lenders go back to granting credit to borrowers who shouldn’t get the loans. And investors enable these practices by providing the bankers with cash.

In short: If we are to have a free market system – and the version operating in the United States obviously does not work – we should let the banks, the investment houses and assorted financial parasites take care of themselves and if they were badly and irresponsibly managed, let them take a nose dive. In time new corporations will be created in their place, which will hopefully act more responsibly and ethically. For the time being we also should zero-in on the top management of some of these companies and if warranted, prosecute those responsible for this huge mess. Lets take a look as well at the present members of the Federal Reserve and at the performance of its long-time chairman Alan Greenspan, who is so very busy working the lecture circuit, while forcefully “taking the high road”.

Filed under: Economy • U.S. Politics

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