A friend of mine thinks the auto bailouts were a mistake, but the bailout of the banks was necessary to prevent a loss of savings. I've already answered him why i think he is wrong, but I was wondering if you guys could give me a full explanation of why he is wrong.
"When the King is far the people are happy." Chinese proverb
For Alexander Zinoviev and the free market there is a shared delight:
"Where there are problems there is life."
Customer: “Hello, I’d like to deposit 1000 dollars in your bank”
Rothschild: “Sure”
C-“Will they be always available to me?”
R-“Well, you should know this is a fractional reserve banking system and not every…”
C-“What does that mean? English please!”
R-“let’s just say that you can ask for them back whenever you like…and I’ll do my best”
C-“cool man, you seem to be very rich and in any case you should be able to repay any loses”
R-“er, no for this is a limited liability company, you see, it’s like in the name of the Bank, and it means I will cover loses only to a given amount. Are you agreeing with this?”
C-“so you won’t keep my money in your safe at all times and you’ll cover loses only to a limited amount?’
R-“precisely”
C-“whatever. I’m in!”
R-“well, conquering the world isn’t that difficult after all, even without using DMT”
Amen to that!
I’ve been personally arguing with people who lost their life savings (http://en.wikipedia.org/wiki/1997_rebellion_in_Albania ) with that argument. It kinda works without delving much into economics.
abskebabs: A friend of mine thinks the auto bailouts were a mistake, but the bailout of the banks was necessary to prevent a loss of savings. I've already answered him why i think he is wrong, but I was wondering if you guys could give me a full explanation of why he is wrong.
first savings under $250,000 are insured by the FDIC, so even if a bank goes bankrupt, depositors get their money back.
second, the bailouts have to be paid for. The gov't has no money, it had to either
1. take it away from someone by force to give to the banks, meaning raise taxes, which takes money from an innocent person to give save your friend's hide. So it's a criminal act that your friend is in favor of. It certainly doesn't benefit the economy as a whole, because taking 700 billion dollars away from the whole country to give to a select few is not helping the economy in any imaginable way.
2. print money from thin air to give to the banks. This is exactly the same as 1. Printing money means that whatever dollar anyone in the whole world has will be worth less. It's called inflation. This is a tax, meaning stealing money, on anyone who has dollars. It is done without their consent, by force, etc, as in 1.
3. borrow money from someone to give to the banks. this is just doing 1. or 2., but at some time in the future. after all, the debt will have to be repaid, [and with interest].
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It's easy to refute an argument if you first misrepresent it. William Keizer
abskebabs:A friend of mine thinks the auto bailouts were a mistake, but the bailout of the banks was necessary to prevent a loss of savings. I've already answered him why i think he is wrong, but I was wondering if you guys could give me a full explanation of why he is wrong.
If I were in their position... maybe I would have let the banks fail and then insured everyone's deposit, then get rid of the whole thing (and tell everyone I'm doing so) so we can move to free market banking. The only reason I would bail the consumers out is because they are victims of fiat banking. Or maybe I wouldn't. I'd have to think hard about it.... maybe it would be a good lesson to people if 5% of the population's lives were ruined because of banks.....
Bailouts do three things:1. Punish those banks that made sound banking decisions.2. Reward those banks that made unsound banking decisions.3. Create incentives for banks to make reckless loans and financial decisions.
Basically, the bailouts were a transfer of wealth from more able bankers/entrepreneurs to hopelessly incompetent bankers. The bailouts essentially squandered wealth and have harmed the long-term viability of the US economy.
Political Atheists Blog
I fail to see the objection. Why should loss of savings be prevented?
If anything, the banks which failed should have been forced to liquidate and sell their assets. Any money they made should have gone towards repaying their clients.
I like F.A. Harper's charity example:
"The virtue of compassion and charity cannot be sired by the vice of thievery."
Does the thievery of taxation - the use of force - justify the supposedly virtuous end of preserving what others have?
"Oh, I wish I could pray the way this dog looks at the meat" - Martin Luther
Savings come from individuals. Not banks. If banks were allowed to fail, then real savings would actually rise.
If the issue is saving the savings, then it makes no sense to save the shareholders and corporate executives, who have clearly failed at capital management.
The fallacies of intellectual communism, a compilation - On the nature of power
Smiling Dave: abskebabs: A friend of mine thinks the auto bailouts were a mistake, but the bailout of the banks was necessary to prevent a loss of savings. I've already answered him why i think he is wrong, but I was wondering if you guys could give me a full explanation of why he is wrong. first savings under $250,000 are insured by the FDIC, so even if a bank goes bankrupt, depositors get their money back. second, the bailouts have to be paid for. The gov't has no money, it had to either 1. take it away from someone by force to give to the banks, meaning raise taxes, which takes money from an innocent person to give save your friend's hide. So it's a criminal act that your friend is in favor of. It certainly doesn't benefit the economy as a whole, because taking 700 billion dollars away from the whole country to give to a select few is not helping the economy in any imaginable way. 2. print money from thin air to give to the banks. This is exactly the same as 1. Printing money means that whatever dollar anyone in the whole world has will be worth less. It's called inflation. This is a tax, meaning stealing money, on anyone who has dollars. It is done without their consent, by force, etc, as in 1. 3. borrow money from someone to give to the banks. this is just doing 1. or 2., but at some time in the future. after all, the debt will have to be repaid, [and with interest].
That's pretty much what I told him, with the added caveat supporting points 1 and 3 that since government is not a profit making enterprise on the market, and suffers indirect calculation and incentive problems, resources are diverted from the sectors they could have been applied productively on the market and a reallocation of capital necessary in the correction/recession is prevented. Because of this, point 3 effectively means that bondholder capital will be further consumed by government, this time damaging the entire world economy, since countries like China still are major buyers and holders of US treasuries
Also thanks for the responses everyone, you've reminded me a little of what I did know and enlightened me of factors I missed, probably a winning combination.
DD5: abskebabs: A friend of mine thinks the auto bailouts were a mistake, but the bailout of the banks was necessary to prevent a loss of savings. I've already answered him why i think he is wrong, but I was wondering if you guys could give me a full explanation of why he is wrong. Savings come from individuals. Not banks. If banks were allowed to fail, then real savings would actually rise.
I sympathise with your conclusion, but could you more elaborately explain your reasoning? If needs be pretend I'm an idiot.
How is it morally justifiable to steal money from one person to ensure the savings of another?
Periodically the tree of liberty must be watered with the blood of tyrants and patriots.
Thomas Jefferson
I would agree with everything said so far, except for the dislike of limited liability.
That's important for any enterprise because of the existence of tort-law. Any company that goes bankrupt will pay up the amount it must pay, eventually: in order of the priorities of their creditors. Limited liability really just means we don't have debtor's prisons (which were quite way to scare off genuine risk-takers who might not have been very wealthy).
As for banks; technically, if you want your account to be fully guaranteed beyond 250,000 in a court, you must have an account where you pay the bank (not an interest-bearing account). Banks of large deposits often have fees instead of interest. As De Soto explained: interest = risk. If people lose some savings due to risk, which they have accepted to receive interest, then that's that: otherwise, they must have rejected interest.
thelion: I would agree with everything said so far, except for the dislike of limited liability. That's important for any enterprise because of the existence of tort-law. Any company that goes bankrupt will pay up the amount it must pay, eventually: in order of the priorities of their creditors. Limited liability really just means we don't have debtor's prisons (which were quite way to scare off genuine risk-takers who might not have been very wealthy).
Dislike of limited liability? Not at all!
Unlike some others "libertarians" around, I find nothing objectionable to corporations (that is, in dealing with second parties, not third parties). As long as it can be done voluntarily, I’m totally for it, and limited liability makes no exception.
But then again, I wouldn’t agree that limited liability absolutely necessary. I’d rather submit that, in an anarchist commonwealth, a guy choosing limited instead of unlimited liability would be outcompeted (check London’s Loyd’s). But such objections strike not the core of the issue. My straw Rothschild there is very, very right (as in, moraly unobjectionable), and I would myself engage in such activities as those which I portrayed him engaging in