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I think if banks had known that the gov wouldn’t bail them out, they would have cleaned up their acts last August. Sure, some may have failed, but the money in banks is FDIC insured up to $100K. The only people hurt would be the people that bought more house than they could afford, the banks that lent that money to them, and, if the bank failed, folks with over 100K in deposits in the failed bank.
That would have been the shunt trip that stopped the economic woes from spreading.
And the FDIC payouts would have been far less than the 700+ billion of bailout I.
That would have precluded the need for Bailout II.
In the mid 80s, we moved away from an economy that supported existence of smaller and more efficient businesses. Deregulation creates behemoths that become so big that their very existence is crucial to national security.
While many are still stuck in blaming home owners who couldn't afford it, a tiny fraction of the whole debacle that waited until NOW for some reason, it would be prudent to look at business practices by the financial institutions, and policies that allowed them to go bonkers. Britain is doing that now. We can talk about derivatives, we can talk about mindless leveraging allowed by the administration to big guns like Bear Stearns to whopping ratio of 33:1. Or, just wait until someone with little idea come in here, and blame CRA and Barney Franks as the only reason for the debacle.
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