Quote:
Originally Posted by aceventura3
Or, the government could do what worked during the S&L crisis if you are in fear of what would happen if the government did not step in. I don't fear bank failures and I think banks when they begin to think they are too big to fail assume more risk. Good conservative, well managed banks should be rewarded, we should not reward failure with bailouts.
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Ace, i'm sympathetic to your view, but you really can't let the banks fail. They're not like piggy banks, and we're already beyond the S&L debacle. If there is a generalised crisis of confidence in the financial system, any bank could fail because they lend their deposits out and because they deal in IOUs and other financial paper. Banks even deal in instruments derived from financial paper. They do that because it makes sale of goods and services easier and faster. If people have to wait for cash, sales will be fewer and farther between. As a result, equipment is used less frequently, shop floors are more idle, fewer workers are needed. In turn, equipment is not replaced, equipment makers hire fewer workers, who can therefore buy less, and so on. It's not a moral issue, but a question of how slowly you want to reproduce capital and how small you want the economy to be. Slow and small means fewer goods, fewer jobs, -- and fewer capitalists.
In the grand scheme of things, slower and smaller is probably better. However, within a capitalist economy, it is a crisis, and just to remind you, a crisis is a point where the survival of the system is in question. It is in question not only because it becomes unclear whether capital is going to be able to reproduce itself, but because the ideological buttresses of the system, e.g. a 'rising tide lifting all boats' can no longer hold.