Lemon socialism?

[Mosier]

When banks and large corporations make wildly disastrous investments, the losses are socialized as the government bails them out. When those same corporations show wild profits, the benefits go exclusively to private shareholders and company executives.

Why should we privatize profits, and socialize losses? Doesn't it strike anyone else as the worst possible economic policy?

[John Mace]

Yes. It's called "moral hazard".

However, it should be noted that this is not the usual turn of events. The bank bailout of recent times was seen as particularly unusual in that the risk to the overall economy of not doing the bailout was greater than the moral hazard. Banks fail all the time, and they are not bailed out.

And almost all the bailout money has been paid back.

Still, I agree with your overall point. Socializing losses while privatizing profits is a terrible economic policy.

[MOIDALIZE]

It's industrial policy without having to call it "industrial policy."

[XT]

Why should we privatize profits, and socialize losses? Doesn't it strike anyone else as the worst possible economic policy?

Certainly it is. Those institutions should have been allowed to fail. Ask yourself though...what then? How would you feel about the situation if the various financial institutions had been allowed to fail? Would the public have been willing to take the bitter medicine? How about if the automakers who were bailed out were allowed to fail? Would it be ok to let all the folks working for them suffer so as to ensure that the rich got their just deserts?

Me, I think that we would have had a much rougher road had the banks and other institutions been allowed to fail, but assume we survived we'd probably have been better off in the long run. However, it was in the public's best interest (as defined by the public and by the government leadership) to not have that happen. C'est la vie.

-XT

[Little Nemo]

The idea is that the government isn't acting to help the bank or large corporation. It's acting to help society at large. The collapse of the business would have harmful effects that would pass beyond the business itself. So the government gives the business money to prevent society at large from experiencing the harmful effects.

When a bank or large corporation makes a profit, nobody experiences any harmful effects from it. So the government has no reason to act.

Think of government bailouts as being like a fire department. The fire department only goes to houses that are on fire. But it makes no sense to say the fire department should also go to houses that aren't on fire.

[MOIDALIZE]

Certainly it is. Those institutions should have been allowed to fail. Ask yourself though...what then? How would you feel about the situation if the various financial institutions had been allowed to fail?


They could have wiped out the shareholders, soaked the bondholders, and spun off several new banks with clean balance sheets, with a government guarantee that they'll liberally finance them at breakeven borrowing rates until they can get back up to speed, coupled with a return to the Glass-Steagall framework of separate retail-investment banking operations.

It still would have cost us a ton of money, but we would have healthy banks instead of the shambling corpses we have now, and the shitty senior management and boards of directors could (not necessarily would) have gotten the boot. Unfortunately, Tim Geithner and Obama seem to believe that no bondholder should get left behind.

[Mosier]

The idea is that the government isn't acting to help the bank or large corporation. It's acting to help society at large. The collapse of the business would have harmful effects that would pass beyond the business itself. So the government gives the business money to prevent society at large from experiencing the harmful effects.

When a bank or large corporation makes a profit, nobody experiences any harmful effects from it. So the government has no reason to act.

Think of government bailouts as being like a fire department. The fire department only goes to houses that are on fire. But it makes no sense to say the fire department should also go to houses that aren't on fire.

So when the government spends trillions of dollars of public money to float failing businesses, why does that business not then belong to the people who's tax money was spent rescuing it? If we're going to socialize a loss to prevent a catastrophic failure of a business, why is that company allowed to remain owned by individuals?

[BrainGlutton]

Yes. It's called "moral hazard".

No, in moral terms, it appears to be a lot more than a hazard.

[John Mace]

So when the government spends trillions of dollars of public money to float failing businesses, why does that business not then belong to the people who's tax money was spent rescuing it? If we're going to socialize a loss to prevent a catastrophic failure of a business, why is that company allowed to remain owned by individuals?

It wasn't trillions. But the idea is that banks, with improved regulation, are best run as private enterprises.

[Mosier]

It wasn't trillions. But the idea is that banks, with improved regulation, are best run as private enterprises.

Okay, so where's my improved regulation? Did we really spend a zillion dollars and get only improved regulation in exchange? (except without any actual improved regulation)

[XT]

They could have wiped out the shareholders, soaked the bondholders, and spun off several new banks with clean balance sheets, with a government guarantee that they'll liberally finance them at breakeven borrowing rates until they can get back up to speed, coupled with a return to the Glass-Steagall framework of separate retail-investment banking operations.

Well, if we are going to fantasize they COULD have nationalized all of the banks, declared socialism and put Mickey Mouse on the American throne as well. However, they are as unlikely as your suggestions of what was politically possible, even if there wasn't a single Republican in office at the time.

It still would have cost us a ton of money, but we would have healthy banks instead of the shambling corpses we have now, and the shitty senior management and boards of directors could (not necessarily would) have gotten the boot. Unfortunately, Tim Geithner and Obama seem to believe that no bondholder should get left behind.

I believe that your suggestions would have been even more of a disaster than what we got, but it's moot...politically it wasn't going to happen. What DID happen is what was politically acceptable to both Democrats and Republicans who favored those measures. I don't think that what we did get was the optimal solution...it's certainly not what I would have done, had I been God King of America....but it was the least odious political solution on the table at the time that would still prevent a complete collapse of our financial system.

-XT

[MOIDALIZE]

Well, if we are going to fantasize they COULD have nationalized all of the banks, declared socialism and put Mickey Mouse on the American throne as well. However, they are as unlikely as your suggestions of what was politically possible, even if there wasn't a single Republican in office at the time.



I believe that your suggestions would have been even more of a disaster than what we got, but it's moot...politically it wasn't going to happen. What DID happen is what was politically acceptable to both Democrats and Republicans who favored those measures. I don't think that what we did get was the optimal solution...it's certainly not what I would have done, had I been God King of America....but it was the least odious political solution on the table at the time that would still prevent a complete collapse of our financial system.

-XT

Your belief has no basis in any fact, experience, or knowledge. It's useless.

Seriously, why do you post in these threads? You have nothing of substance to contribute.

[XT]

Seriously, why do you post in these threads? You have nothing of substance to contribute.

Well, seriously, for the same reason you do, considering your own lack of grounding in reality...obviously because we both like to argue.

Your belief has no basis in any fact, experience, or knowledge. It's useless.

Belief has nothing to do with it. Political reality shaped what happened. I realize that you can't grasp this seemingly basic concept so I'd say just push on with your own beliefs. I'm sure they give you comfort at night.

-XT

[MOIDALIZE]

First, you post some insipid "heh, socialism" comment, even though TBTF is a form of socialism, and the fucking thread is titled "Lemon socialism?". Then you essentially argue "it could have only happened the way it happened," but the whole point of the thread is to examine corporate socialism and moral hazard, which leads to questions of why it's done and whether there's a better alternative. In the case of the banks, I provide such an alternative (an alternative Sweden chose), but I guess the idea that things could have been done a different way is a totally mind blowing concept to you, since you couldn't come up with anything more intelligent than "Well...it didn't happen that way." Awesome insight there. You'd rather be the David Brooks of Straightdope, posting simplistic, middle-of-the-road pablum, and filling space with a bunch of empty paragraphs than actually exerting the barest level of thought and effort into replying to a thread, you unbelievable bore.

[Ludovic]

"Sick and tired of Lemon Socialism? Make your voice heard now at www.lemonparty.org (http://en.wikipedia.org/wiki/Shock_site)!"

[Der Trihs]

Why should we privatize profits, and socialize losses? Because America exists the serve the needs and desires of the very wealthy, and no one else. The rest of us exist just to serve as resources and toys for them. So we pay for their mistakes because as far as they are concerned that's what we are for, and they own the country.

[XT]

First, you post some insipid "heh, socialism" comment, even though TBTF is a form of socialism, and the fucking thread is titled "Lemon socialism?".

Um, no...did you actually READ what I posted? Because it seems you are reeling off a tape recorder here. I didn't say anything against socialism in my first or second post...what I said was that political reality precluded your fantasy and that if those businesses had been allowed to fail then the PUBLIC as well as the POLITICAL fallout would have been unacceptable. Please, shut off the tape recorder of what you THINK I'm saying and actually read it. It's still probably bullshit, but at least lets try and stick to it being my actual bullshit, and not your strawman of my bullshit.

Then you essentially argue "it could have only happened the way it happened," but the whole point of the thread is to examine corporate socialism and moral hazard, which leads to questions of why it's done and whether there's a better alternative.

I like to at least try and stick to something close to reality. Here is what you said that I was responding too:

They could have wiped out the shareholders

Yeah...THAT'S really likely to have been a possible political solution.

soaked the bondholders

Um, sure...again, the probability of this being politically acceptable is on par with snowballs in a furnace. These aren't even politically acceptable in Europe, let alone in the US, let alone when Bush was president.

and spun off several new banks with clean balance sheets

The government was going to spin off new banks by fiat? Not that this is a bad idea, mind (myself, I 'believe' that the government should have bought up the poisoned assets to clear the balance sheets, though that was politically unacceptable as well), but the reality is that this was never in the cards.

with a government guarantee that they'll liberally finance them at breakeven borrowing rates until they can get back up to speed

How would this have worked financially, let alone politically?? You are going to force your fiat banks to loan money at breakeven rates? I can't even begin to imagine all of the unintended consequences from such an action, but I'd say they would be pretty horrific. But even if I'm full of shit there is, to put it gently, zero way you could have gotten something like this politically off the ground.

coupled with a return to the Glass-Steagall framework of separate retail-investment banking operations

Leaving aside beating the 'this isn't realistic' dead horse, what do you suppose this would have done? I ask out of genuine curiosity here...how would this have helped speed a recovery, or if not that, what do you propose that this would accomplish?

You'd rather be the David Brooks of Straightdope, posting simplistic, middle-of-the-road pablum, and filling space with a bunch of empty paragraphs than actually exerting the barest level of thought and effort into replying to a thread, you unbelievable bore.

Thank you for your cogent analysis. :p

-XT

[Wesley Clark]

In the documentary 'inside job' a high ranking worker in finance (I forget his title, maybe VP or head of something for a major bank) said reaching 'too big to fail' status was something banks shot for because they know if they screw up they will be bailed out. You take risks and if you succeed you keep the proceeds and if you lose you get bailed out (Simon Johnson wrote a good article about this in the Atlantic).

We are a hybrid democracy-plutocracy. This is the kind of policy you'd expect in that system.

[Wesley Clark]

nm

[Little Nemo]

So when the government spends trillions of dollars of public money to float failing businesses, why does that business not then belong to the people who's tax money was spent rescuing it? If we're going to socialize a loss to prevent a catastrophic failure of a business, why is that company allowed to remain owned by individuals?Does the fire department own your house if they put out a fire?

[Mosier]

Does the fire department own your house if they put out a fire?

No, because I pay the fire department to put out my fire. They're socialized.

[tomndebb]

MOIDALIZE, stop with the personal attacks.
xtisme, don't be baited into responding in kind.

Both of you knock it off.

[ /Moderating ]

[septimus]

Were shareholder sacrifices spread evenly? Two major banks were zeroed out, while others of questionable solvency were kept whole with government support. And what about bondholders? I think FNM and FRE bonds were kept whole because the markets (and foreign governments) had come to think of these bonds as government-backed, but weren't other bonds kept whole that needn't have been? I'm asking these questions because I've never seen a good on-line synopsis of the answers.

As for regulatory responses to the credit and mortgage crises, I'm afraid they suffer the same problem as earlier response to the Enron fiasco: misidentification of the problems. In fact I read of at least one bank (which has maintained good profitability because of its loaning methodology) which has decided to give up its FDIC/FRB status because of new paperwork requirements.

What then were the problems and appropriate responses? Too big a question to answer here except for two comments.
1. Many financial shenanigans were criminal fraud. More people should have been sent to prison.
2. I remember an SDMB thread in which OP asked for what single legislative error caused the credit crisis. To me this showed huge misconception. We've built a flawed system based on crony caveat emptor capitalism, disdainment of public interest, and a perverse love of hyper-efficiency. A Bandaid solution based on increased paperwork is not the answer.

[Little Nemo]

No, because I pay the fire department to put out my fire. They're socialized.And you pay the government to prevent major bankruptcies. In both cases, no change of ownership is part of the process.

[septimus]

... David Brooks ... simplistic, middle-of-the-road pablum, and filling space with a bunch of empty paragraphs ...

I'm glad to see I'm not the only one who finds David Brooks to be a priggish hypocrite whom the N.Y. Times should be ashamed to publish.

[Mosier]

And you pay the government to prevent major bankruptcies. In both cases, no change of ownership is part of the process.

I own my share of the fire department, through the government. Nobody gets rich due to risky investments the fre department gambles on. Compare that to "to big to fail" businesses?

If they require government funding to exist, why are their profits not socialized?

[MOIDALIZE]

I'm glad to see I'm not the only one who finds David Brooks to be a priggish hypocrite whom the N.Y. Times should be ashamed to publish.

What's funny is that I've seen commentators on the left AND the right just savaging him for the silly bullshit he writes. I guess radical centrism and solemnly parroting the conventional wisdom isn't the most persuasive tact after all.

[XT]

Being in the middle often means you get hit by traffic from both sides. He still get's paid though, so he's laughing all the way to the bank. :p

-XT

[MOIDALIZE]

Yeah...there's a lot of that going around in this country.

[XT]

Oh, no doubt...I think a lot of people are coming to their senses and moving away from the frothing edges of the political extremism that seems to be gripping the country these days....

Er, or did you mean the laughter on the way to the bank to drown out the lamentation of the women and children crushed beneath the uncaring wheels of progress?

-XT

[MOIDALIZE]

Yes, the getting paid part. The partisanship doesn't bother me nearly as much as the arrogance in believing the middle way is always the Serious and Sober way.

[XT]

Unlike the arrogance that claims that the Reality has a Liberal/Conservative bias? :p Basically, in David Brooks case (who, I'm not a big fan of either, despite assertions of similarity), what you have here is market forces at work, distasteful as that no doubt is to some. If people weren't reading him and some large non-zero number of readers getting something out of what he's writing then he wouldn't be laughing all the way to said bank, or getting paid. That he is says something about the fact that while YOU may not like him and think he's got all those fine XT qualities such as 'simplistic, middle-of-the-road pablum, and filling space with a bunch of empty paragraphs than actually exerting the barest level of thought and effort into replying to a thread', as well as an 'unbelievable bore', others obviously disagree. Same goes for such stellar personalities as Rush and Savage (at least you didn't compare me to those two...eee-gads! :eek:).

-XT

[MOIDALIZE]

Yeah, I didn't read any of that.

[XT]

Just working on your post count then? Me too! WEEEEE!

-XT

[Little Nemo]

I own my share of the fire department, through the government. Nobody gets rich due to risky investments the fre department gambles on. Compare that to "to big to fail" businesses?

If they require government funding to exist, why are their profits not socialized?Well, a wise man once said, "The idea is that the government isn't acting to help the bank or large corporation. It's acting to help society at large. The collapse of the business would have harmful effects that would pass beyond the business itself. So the government gives the business money to prevent society at large from experiencing the harmful effects.

When a bank or large corporation makes a profit, nobody experiences any harmful effects from it. So the government has no reason to act.

Think of government bailouts as being like a fire department. The fire department only goes to houses that are on fire. But it makes no sense to say the fire department should also go to houses that aren't on fire."

[mlees]

Just working on your post count then? Me too! WEEEEE!

-XT

I just had the image of the Geico piggie w/pinwheels.

[Buck Godot]

The solution would seem to be to set up a fund based on profits taxed from successful too big to fail banks to pay for their rescue in case they go under. I recall a couple of years ago Obama and the Democrats suggesting something like this and the Republicans being opposed. I don't recall if it made it into law or not. In the fire analogy it would be the same as requiring people to buy fire insurance from the fire department.

[marshmallow]

When a bank or large corporation makes a profit, nobody experiences any harmful effects from it.

Say what you will about the tenets of capitalism, at least it's an ethos.

[Der Trihs]

Unlike the arrogance that claims that the Reality has a Liberal/Conservative bias? :p It's not arrogance; it's a joke, and an observation that conservative beliefs on the whole tend to be factually wrong. And that conservatives themselves tend to have a disdain for reality; "we make our own reality" to use the Bush Administration quote. They don't care about facts or logic; they believe in faith and the power of sheer conviction to make reality what you want it to be.

[Little Nemo]

Say what you will about the tenets of capitalism, at least it's an ethos.Actually I disagree with that. I don't think capitalism is an ethos. Capitalism is just something that works, like algebra or chemistry. People should use capitalism because it's functional not because it has any inherent moral value. Immoral people can use capitalism to achieve immoral goals.

[puddleglum]

Well, a wise man once said, "The idea is that the government isn't acting to help the bank or large corporation. It's acting to help society at large. The collapse of the business would have harmful effects that would pass beyond the business itself. So the government gives the business money to prevent society at large from experiencing the harmful effects.



"The ultimate result of shielding men from the effects of folly is to fill the world with fools.”
Every business failure has harmful effects but it also has good effects. Every failure frees up resources that can be used by a succesful business. Investor's money, employees' time and talents are all freed up to be used in ways that are more beneficial to society. Unfortunately the adjustment is not instantaneous and some resources may be idled while the adjustment takes place. Politicians can get votes by making sure the painful adjustments do not have to take place on their watch. For example, if two farms both grow wheat and one farm harvests with a combine and the other uses men with scythes. It is in society's interest for the farm with manual harvesting to go out of business and a farm using combines to replace it. However, the scythe workers and the farm owner would vote for any politician promising to bail them out using tax money from the other farmer.

[Der Trihs]

Every business failure has harmful effects but it also has good effects. Every failure frees up resources that can be used by a succesful business. Investor's money, employees' time and talents are all freed up to be used in ways that are more beneficial to society.Or not. If the collapse is big enough it tends to economically paralyze society instead; a depression in other words. And from most people's perspective, human suffering especially their own is more important than some striving for pure economic efficiency anyway; if the economy is more efficient but people are more miserable then that's a net loss.

[mlees]

"The ultimate result of shielding men from the effects of folly is to fill the world with fools.”
Every business failure has harmful effects but it also has good effects. Every failure frees up resources that can be used by a succesful business. Investor's money, employees' time and talents are all freed up to be used in ways that are more beneficial to society. Unfortunately the adjustment is not instantaneous and some resources may be idled while the adjustment takes place. Politicians can get votes by making sure the painful adjustments do not have to take place on their watch. For example, if two farms both grow wheat and one farm harvests with a combine and the other uses men with scythes. It is in society's interest for the farm with manual harvesting to go out of business and a farm using combines to replace it. However, the scythe workers and the farm owner would vote for any politician promising to bail them out using tax money from the other farmer.

From what little I know of the Great Depression, the economic slump was because of the result of the lack of economic activity, not a problem of resources, labor, or production.

People lost faith in the system. It took some time to get that faith back.

Or am I wrong about that?

[Enderw24]

If life gives you lemon socialism, make lemonade!


Of course, it's going to be pretty crappy lemonade unless life also gives you water socialism and sugar socialism

[Chronos]

Even before the bailouts, if the banks were too big to fail, they should have been socialized. That's what government is for: To do the things that are too big to fail.

[puddleglum]

Or not. If the collapse is big enough it tends to economically paralyze society instead; a depression in other words. And from most people's perspective, human suffering especially their own is more important than some striving for pure economic efficiency anyway; if the economy is more efficient but people are more miserable then that's a net loss.

Over what time horizon? A less efficient economy hurts everyone in society for the rest of their lives. If the US economy over the last 100 years grew 1% less than it did each year, the US would currently have the same standard of living as Mexico. Small changes in efficiency over long periods of time add up to huge changes. Unemployment hurts some people alot for as long as it lasts

[puddleglum]

From what little I know of the Great Depression, the economic slump was because of the result of the lack of economic activity, not a problem of resources, labor, or production.

People lost faith in the system. It took some time to get that faith back.

Or am I wrong about that?

The great depression was caused by a severe monetary contraction. The amount of money in circulation declined by nearly a third.
To see a lecture about it go here http://vimeo.com/11700175
To read about it go here: http://www.themoneyillusion.com/?p=4161

[mlees]

The great depression was caused by a severe monetary contraction. The amount of money in circulation declined by nearly a third.
To see a lecture about it go here http://vimeo.com/11700175
To read about it go here: http://www.themoneyillusion.com/?p=4161

I read the second link.

You seem to support what I said: The economic activity (money in circulation) contracted sharply. Many banks in the US failed, causing folks in other banks to literally pull out their funds and stuff their matresses. A loss of faith in the banking/investment system.

In post #41 you state that weak (or inefficient) buisnesses failing is good, because it makes way for other more efficient buisnesses to take over the void.

The problem is, neither the Great Depression, nor our current recession, is based on a problem of supply (resources), availability of labor, or production potential.

It seems as if people (both consumers and corporations) are "saving" more money as a shield against potential bad times in the near future, and not spending or investing as much as they did during the years when they "ran with the bull".

This is a perception issue. People won't loosen the money belt unless they feel confident that good times are just ahead. Allowing buisnesses "too big to fail" to fail does not inspire this confidence. So while I thought that TARP was a turd sandwich, it was better than economic panic.

[Mosier]

Even before the bailouts, if the banks were too big to fail, they should have been socialized. That's what government is for: To do the things that are too big to fail.

That's a much more clear and succinct way to sum up my thoughts on the matter. Thanks!

[Capt. Ridley's Shooting Party]

That's a much more clear and succinct way to sum up my thoughts on the matter. Thanks!

It's not really a novel idea. Take the words of this raving socialist:


“To restrain private people, it may be said, from receiving in payment the promissory notes of a banker for any sum, whether great or small, when they themselves are willing to receive them; or, to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty, which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed.”


The socialist in question? Adam Smith. Modern Western nations are not capitalist. They're corporatist. True capitalist governments would be much more aggressive in identifying and splitting up banks and other companies that are "too big to fail".

[emacknight]

When banks and large corporations make wildly disastrous investments, the losses are socialized as the government bails them out. When those same corporations show wild profits, the benefits go exclusively to private shareholders and company executives.

Why should we privatize profits, and socialize losses? Doesn't it strike anyone else as the worst possible economic policy?

Publicly Traded Company (http://en.wikipedia.org/wiki/Public_company)

As far as I can tell, Chrysler was the only privately held company that got a bailout. The others were all publicly traded companies, which means the benefits are not exclusive. If you want, you can share in their profits. Sign up for a discount brokerage, deposit some money, and then buy some shares. When the company gets those wild profits, your stock will go up and you'll get dividends:

Wells Fargo at 1.91%
JP Morgan Chase at 2.96%
Bank of NY Mellon at 2.45%
US Bank Corp at 2.08%

And once you do go and buy some stock, you'll realize what happens when the banks don't make wild profits, and you may find you change your tune.

Some data I'd love to see would be how many 401(k)s contained at least one of the companies on the TARP list. I think what you'll find is that what you call "private shareholders" were actually a large chunk of the population who happily watched their retirement funds go up as a result of those "wild" profits, and were less happy to see their retirement funds go down during the crash.

It should also be pointed out that nearly all of the "too big to fail" companies that received TARP funds have paid it back. GM still owes some, as does GMAC and Regions Financial.

[emacknight]

Even before the bailouts, if the banks were too big to fail, they should have been socialized. That's what government is for: To do the things that are too big to fail.

That's a much more clear and succinct way to sum up my thoughts on the matter. Thanks!

Are you suggesting that the government should be the one to issue mortgages, insurance, and managed financial investments?

Why not skip that step and just have the government own all the property, seems a lot less messy.

[Ludovic]

It should also be pointed out that nearly all of the "too big to fail" companies that received TARP funds have paid it back.

The percentage was certainly helped by nudging companies to accept TARP funds even if they didn't think they needed them. Those companies for obvious reasons paid them back as soon as possible.

The rest of your post is a pretty ridiculous intentional misreading of "public" versus "private". If the government bails the banks out due to their poor decision-making, we shouldn't prop them up with our government's money -- funds that American taxpayers do not even have a choice to refuse paying, unlike your thought experiment.

Of course, it's a sliding scale. I'm not really outraged at the auto bailout because it was not the car makers' fault, and the US made money on it. But we should have either let many more financial institutions fail or require much more onerous restrictions for our help, rather than throwing money at them so their execs can get billions in bonuses.

[IdahoMauleMan]

It's not really a novel idea. Take the words of this raving socialist:



The socialist in question? Adam Smith. Modern Western nations are not capitalist. They're corporatist. True capitalist governments would be much more aggressive in identifying and splitting up banks and other companies that are "too big to fail".

Or by not allowing fractional-reserve banking and/or fiat currency to exist, at all.

I would make the argument that by merely allowing those institutions to exist without the explicit consent of the customers and/or insisting that fiat currency be legal tender, already constitutes an overreach of government.

I'm not familiar with the Smith passage you quoted....which was nice, by the way. But it also seems to suggest that Smith was OK with those ideas as a default state of affairs.

[Rune]

When banks and large corporations make wildly disastrous investments, the losses are socialized as the government bails them out. When those same corporations show wild profits, the benefits go exclusively to private shareholders and company executives.

Why should we privatize profits, and socialize losses? Doesn't it strike anyone else as the worst possible economic policy?We shouldn't. The stupid ineptly run banks should be allowed to go bust. Other more competently run banks will flourish where the useless ones goes bankrupt. And if a bank is really so big that its collapse would be a danger for the whole economy, then it should be nationalized rather than bailed out. After nationalization if can be cut into pieces and the healthy parts sold off. Stockowners and bondholders should lose their investments. Directors and board members that have behaved grossly incompetently should be prosecuted, convicted and thrown in jail. Bonuses should be confiscated up to a period of years into the past.

[emacknight]

The rest of your post is a pretty ridiculous intentional misreading of "public" versus "private". If the government bails the banks out due to their poor decision-making, we shouldn't prop them up with our government's money -- funds that American taxpayers do not even have a choice to refuse paying, unlike your thought experiment.

Do we ever have a say in how the government spends money? What makes TARP so unique? So we propped up a couple of banks, as opposed to a couple of dictators. We took over some companies instead of some countries. And like I said, those companies the government saved were partly owned by American taxpayers (except Chrysler, but you're okay with Chrysler).

Of course, it's a sliding scale. I'm not really outraged at the auto bailout because it was not the car makers' fault, and the US made money on it.

How exactly wasn't it the car markers' fault? And do you happen to know how much money they made on that as opposed to the financial institutions? If it turns out the US lost oh let's say $11billion on GM, and just for fun let's say the government lost another $3billion on Chrysler, but made oh I don't know 8.2% on the financials will you change your tune? Or dig your heals in further?

[Ludovic]

So we propped up a couple of banks, as opposed to a couple of dictators.You support propping up dictators? Interesting!

[Little Nemo]

"The ultimate result of shielding men from the effects of folly is to fill the world with fools.”
Every business failure has harmful effects but it also has good effects. Every failure frees up resources that can be used by a succesful business. Investor's money, employees' time and talents are all freed up to be used in ways that are more beneficial to society. Unfortunately the adjustment is not instantaneous and some resources may be idled while the adjustment takes place. Politicians can get votes by making sure the painful adjustments do not have to take place on their watch. For example, if two farms both grow wheat and one farm harvests with a combine and the other uses men with scythes. It is in society's interest for the farm with manual harvesting to go out of business and a farm using combines to replace it. However, the scythe workers and the farm owner would vote for any politician promising to bail them out using tax money from the other farmer."That which doesn't kill you makes you stronger."

On the other hand, if it does kill you, you don't get any stronger because you're dead. You want to stay in the middle area between coddling society to the point where it doesn't go anywhere and allowing society to die for a lack of assistance.

[emacknight]

You support propping up dictators? Interesting!

Dig in your heals, squat your ass down, and say 'hee-haw'

Still support propping up GM and Chrysler?

[Chronos]

Quoth IdahoMuleMan:
Or by not allowing fractional-reserve banking and/or fiat currency to exist, at all. The only alternative to fiat currency is barter, and that's extremely inefficient. Yes, I know, you're about to protest that we could use gold instead. But gold is also a fiat currency, and not even a very stable one. It is, in fact, a pretty lousy fiat currency.

Gold is backed by nothing. Dollars are backed by everything.