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      09-03-2009, 09:31 PM   #33

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Originally Posted by scottwww View Post
Some institutions should perish. Then the stronger institutions will survive. I don't wish for the big banks to fail, but I would rather they fail than put the entire populace into an impossible debt. There are many speculations and projections about where the crisis can lead. It has been too many years a patch the balloon and reinflate it mentality. Painful as it may be, maybe it's just time to start over.
I agree, a lot of institutions should perish. Many should go through bankruptcy reorganization in order for them to become profitable again. Others need to be broken up until they are no longer "too big to fail".

But all that has to happen in an ORDERLY manor. Not all at once in a massive collapse in such a way that it triggers a domino effect of collapses in perfectly good businesses. Like businesses that were seeing their credit lines frozen so they couldn't make payroll. That sort of disorderly destructive collapse takes out the good with the bad.

The best thing the gov't intervention did was to ALLOW an orderly dismantling of some businesses, and the orderly bankruptcy of others.

For example, AIG is in the process of spinning off their successful sections, and shrinking their size. So instead of the entire operation crashing, the successful parts will survive. Yes, we will lose money on AIG that will have to be offset by gains from other companies. But they will be dismantled in an orderly way that won't trigger a domino effect. Citi is doing the same thing.

Again, the problem with letting the bad banks fail is that if they had been allowed to fail all at once in a catastrophic mannor, the good banks you want to survive would have been taken down too.

And the problem with massive failure, is that the very people you don't want to have to pay for these bailouts, are the exact same people who would be financially destroyed when their holdings and deposits in the banks, and their employers/jobs were all wiped out. It doesn't make sense to punish these people for the failures of bankers.

It is penny-wise and pound-foolish to let the US banking system collapse and take out other sectors with it, just to avoid having to temporarily provide funds to a few banks to AVOID the collapse.

Especially when these funds have a chance of being paid back -- perhaps in part, in full, or with profits.