The Austrian School [of Econoimcs] is far outside the mainstream and has nothing intelligent to say about modern economies.
The financial bailouts were regrettable but anyone with a clue knows that they were absolutely necessary. Banks are not hardware shops. They provide the credit that is the lifeblood of a modern economy. They should never have been allowed to become “too big to fail” in the first place, but they most certainly were. When Lehman precipitously went into bankruptcy, the entire banking system began to collapse and the economy went into cardiac arrest. AIG held enough obligations on its books to take down every single major Wall Street bank. Needless to say, when individuals and business start panicking about their money, runs occur on banks, people start rioting, corporations can’t pay their workers, grocery stores can’t stock their shelves – it can all unravel very quickly. Go read about the Great Depression.
No one enjoyed having to bail out the banks. Even the banks themselves didn’t want the government to take a stake in their companies. It wasn’t just for fun. It wasn’t some massive conspiracy in broad daylight. We should be making sure that it never happens again. But you don’t let an entire city burn just to teach the gas company a lesson about fire prevention. Deregulation just isn’t in the public interest in certain vital sectors of the economy.
I know that some find it shocking that Wall Street bankers left to their own devices could possibly behave in a less than saintly manner. Even Alan Greenspan admitted before congress that his belief that markets basically take care of themselves was “flaw[ed].”
We both want no more bailouts. Some of us would prefer to prevent bailouts from becoming necessary in the first place instead of praying to the invisible hand while Rome burns.
