Hey Dow, please don't worry about those big banks.

January 21,2009 | gpk9

[gpk9]

Ok Dow, now please calm down. Please listen to me. No, over here, look at me. Ok, do I have your attention now? Good.

Now listen to what I'm saying about those big banks out there. You don't have to worry about them, ok?

When they start making noise about being in trouble, about their investment portfolios tanking, and being near bankruptcy, and stuff like that, just ignore it, ok? They're just trying to scare you.

Now let's look at the facts. Those big banks out there took some really big risks. They gambled big-time, and they lost big-time. That's normal. People gamble and loose all the time, ok? Same thing with those big banks. They can gamble and loose also. It's no big deal, ok?

Say what? If they go bankrupt it'll bring the economy down? Yes, yes, I know that's what the government has been telling you, but it's not true, ok? The government is simply trying to scare people into supporting their massive bailouts of some crooked executives. That's all it is, ok? Nothing to worry about, ok?

If those big banks go bankrupt it won't be a problem. Other banks that are in good financial condition, and there are lots of them, will simply step in, pick up the pieces, and keep things moving right along, ok? You won't even notice it.

[Arguendo]

How much experience do you have with the financial sector?

[cripplecreek]

Don’t need experience in the financial sector to know the difference between right and wrong.

[o_zarkman44]

The banks are shaky so they can shake loose some more TARP bailout money.Create the illusion that we can’t survive without that particular bank and the feds will run to the rescue. And the bank will kneel to the fed with gratitude.

I agree there are a lot of stable banks that didn’t invest in shaky paper, fueled by shaky speculation, based on shaky credit.

[misterrob]

The government needs to step up with the money that would allow the banking system to fail and create new banks that are sold to the public with clean balance sheets. People will buy into a bank that has no bad debt and lends to people with reasonable credit levels.

[dixie sass]

Ah, wake up and smell the dead roses. One major reason we are in the trouble we are in, is because of Bank of America, Chase, Citibank, Wachovia, etc trying to be more than what they are. When Clinton allowed the Securities and Exchange laws to be amended and/or changed, well, gosh...

Bigger is not better. Ever...!!!!

[Texan Tory]

I’m no expert on financial matters, far from it, but your idea makes sense in that it takes human behavior into account. It’s simple human behavior to do whatever you can get away with. I know this too frequently applies to me (unfortunately) in my own life. If you know that you’ll get a bailout, you’re less likely to be careful about your choices. The government, by artificially propping up failing banks and companies, is not promoting prudent, fiscally responsible behavior. If the government lets the chips fall where they may, I think the surviving banks will learn a lesson from this and be a lot more careful the next time around.

[OB1kNOb]

So ignore the fact that our government is going to give the failing banks bazillions of dollars we don’t have into keeping their bloated carcasses afloat, if not out right nationalize them ? Pppffffht! Right! I’ll have some of what you’re smoking.

[Arguendo]

True, but to credibly make the claim that big bank failures “won’t be a problem” you do.

Doesn’t mean we should bail out the banks, but it would be hard to argue their failure will be painless.

[gpk9]

. but it would be hard to argue their failure will be painless."

It would be quite painless ...well... except for their stockholders. I suspect those folks might hurt a little.

But the rest of us wouldn't feel a thing. We'd hardly even notice it.

By the way, I'm not endorsing bailouts. The essay doesn't endorse bailouts. I believe bankrupt banks should go bankrupt. The essay makes that quite clear.

[Arguendo]

The shareholders will obviously be hurt the most, but the pain will ripple far beyond the financial sector. Have you been following the credit crunch so far? Businesses are already having difficulty getting loans, and bank failures will only make it more difficult for quite a while. Capital investment will slow significantly as a result. We might see widespread deflation as the money “created” by those banks disappears.

This doesn’t mean banks shouldn’t be allowed to fail (though it might be wise to modify the bankruptcy process to better accomodate large banks), but it will not be painless.