Thursday, July 9, 2009

Time: Advice from an Economist Who Saw 1929

I thought this was interesting:

Should the government be bailing out troubled banks or letting them
I'm opposed to the government bailing out firms that should be shut down because they are basically insolvent. A firm that's insolvent should be encouraged to file for bankruptcy and rid the market of an institution that's using resources that could be better used by productive firms.

Are you just talking about financial institutions or companies in
general, such as GM?
It applies to any kind of firm that isn't solvent.... It should be encouraged or even compelled to file for bankruptcy. When you keep on bailing out institutions indiscriminately, there is no incentive for them to be prudent in what they're doing, because ... the government will come along and bail them out.

So you think the auto industry should not have been bailed
If GM was on the verge of bankruptcy, it should have been shut down. There's all this capacity in the production of cars, but there isn't a market that can absorb all that these firms are prepared to produce. If jobs are lost, then jobs are lost because these are firms that cannot exist, because there is insufficient market demand for their product. And if there is no such market demand, they should not be allowed to exist. Let the market decide if these firms deserve to exist. Government should not be the one who's the arbiter.

There is more in the article.

1 comment:

Happy Hour...Somewhere said...

Thanks for the great links and blog~! Having grown up in the San Fernando Valley, it is hard to see what is happening. I have family members who might become a statistic soon and yet they think their home is going to go up in value next year. (Never mind that they pulled every dime of equity out.) They know a realtor who says he has never been busier...supposedly with equity sales, not REOs or short sales.