I agree completely

Reader comment on: More on Trumka and Private Equity
in response to reader comment: Depends how you lose your money I think

Submitted by ben (United States), Apr 14, 2010 08:17

The government should be clear about when it will, or will not bail something out. Fannie Mae had an implied guarantee it ended up using. But to avoid an "implied guarantee" it would seem one of a few things must happen. Our country must be willing to let the financial system collapse (or in futureofcapitalism's opinion call the bluff of the opinion makers that collapse is possible), regulate the financial system in such a way that those entitities whose collapse could bring down the system are broken up (Volker's position) or regulate any industry that has the potential to bring down the system (Financial industry at minimum -Krugman's position). Is there a fourth possibility on the table?

The government should regulate in such a way so that it does not give an implied (or outright) guarantee to any firm. I find Krugman's argument convincing that breaking up big banks doesn't solve the problem. All three of the proposals are not airtight, but making the banking system "boring" again, while depressing some financial innovation and possibly short term growth, presents the best chance of avoiding catastrophic situations. I find futureofcapitalism's theory that allowing citi and aig to fail might not have caused the havoc that many suggest unconvincing. It reminds me a bit too much of what global warming deniers say, "the scientists can't tell us exactly what will happen or how quickly, so let's not believe anything they say." Perhaps letting citi and the rest fail would not have causes 30% unemployment, but even if it were just 20%, saving them was far cheaper and less disruptive than the alternative.

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