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      09-03-2009, 08:54 PM   #31

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Originally Posted by scottwww View Post

Too early to tell. Throw enough money at a problem and it will look OK for awhile. What will happen in the years ahead is speculation at this point. I lean toward the idea that TARP and other measures have delayed the inevitable and perhaps prolonged the problem to ultimately make it worse. It also set a precedence that is antithetical to my beliefs about the role of U.S. government.
It isn't too early to tell if the collapse of the banking system was avoided in the fall of 2008. We very much did avoid it. That was the moment of decision, and the decision was made to act.

Had we followed your chosen path, for the government not to step in at all, there would have been a string of Lehman's one after another. At first stronger banks bought out smaller failed banks (which is GOOD). But that well had run dry by the time Lehman collapsed, and no one would buy them. That was where we were at when the Congress stepped in.

If more banks had crashed in that way, their assets would have been auctioned off. But without banks to finance the purchase of these assets, or banks to purchase these assets themselves, the value of these assets would tank. The problem is that all the rest of the banks were holding the EXACT SAME type of assets, and once they tanked in value at auction, the value of these assets would have tanked everywhere. This would instantly trigger even more banks to crash as their nightly leveraged calls were all called in and they didn't have enough CASH to cover 15 to 1 or 30 to 1 leveraged positions. The downward cycle ends in complete crash of the entire financial sector. That is what we avoided by providing CASH liquidity so banks could survive nightly calls on their leveraged positions if they were called in.

Since you are against gov't involvement, money market accounts would have collapsed too. (Those were going under too).

Without the gov't FDIC protections, there would have been a quick run on banks. That would have taken out nearly all the rest of the banks that were left, and left the majority of depositors pennyless.

This isn't just my theoretical, this is known historical fact based upon how banking crisis after banking crisis have played out in nation after nation over centuries. We saw it here in the US back when local banks all printed their own money, and when a bank went bankrupt, their bank notes instantly became worthless. When other local banks were stuck with too many of these notes from depositors, they too crashed. Which then triggered other banks that held too many bank notes of these TWO banks to crash. This cycle isn't new, and there was no "free market" way of STOPPING the crash.

The "free market" solution was to allow that crash to happen in order to punish the bankers for their failed business. But in punishing the bankers, the entire country would have been thrown into a deep depression much worse than what we have right now.

Is this what you support? Punishing the entire nation for the failures of a small group of businessmen?

Having a gov't allow that to happen when they have the power to stop it just doesn't sound like MY beliefs about the responsibility of the Government to her citizens.