OK, the banks got themselves into this mess. They lobbied for the reduced oversight and expanded abilities to leverage all their assets further than what I would consider even being the slight bit responsible. They asked for it, they got it. We’ve given them cash and they took it. Now guess what, they have their hands out for BILLIONS more. What happens if we would let them crash? Just how bad would a possible run on the banks be? Well unfortunately, I think at this point the idea of letting banks crash is no longer a viable option. Watch the video below and you may have a different view on letting the banks crash:
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The fundamental flaw in the entire banking system “bailout” process is that it is geared not to support the financial system as a whole, but to support the large Wall Street banks as continuing entities. The thinking appears to be that the health of the Wall Street banks are essential to the fundamentals of the national financial markets. This is not unexpected, as there has always been an incestuous relationship between the Treasury, the Fed, and Wall Street (and most of our bought and paid for politicians).
There are many hundreds, if not thousands, of banks that are not essentially insolvent as the large Wall Street banks are (if all their obfuscations via “off the books” or shell company strategies were to be treated honestly). TARP, TARP2, etc. money should be made available only to demonstrably solvent banks (i.e., taxpayer funds should be put at risk to loan to only those who are demonstrably financially “healthy” based on honest external auditing – what a concept!).
These solvent banks would be thrilled to have the opportunity to make money on loans to consumers/businesses using this cheap government money. Of course, this would involve providing tens or hundreds of millions to many, many smaller banks, rather than the many tens of billions to a few of the Wall Street giants.
While the “healthy” banks are providing financing to support the economy, the insolvent banks (to include the Wall Street giants) should be liquidated in accordance with existing banking laws.
In the previous post, instead of “. . .TARP, TARP2, etc. money . . .” I should have written “. . . money allocated to TARP, TARP2, etc., and funds allocated to purchase Wall Street equity . . .”