Nathan Scandella (personal)

The Bailout

I hope to expand on this theme later, but for now, I simply want to get this on record ...

Regarding the massive government bailout of the banking industry that's currently ongoing, I would like to comment on a couple of common misunderstandings:

1) If you're someone who thinks this (or any) bailout is a good idea, then you don't understand how mainstream economics works. When a business makes a bad decision, as so many banks recently have, you have to allow their standing in the marketplace to be damaged. Otherwise, you've set up the wrong kind of feedback, that rewards mistakes, and we virtually ensure that a similar crisis will happen again.

2) If you're someone who thinks this (or any) bailout is a bad idea, then you don't understand that mainstream economics is a bogus mythology. The idea that markets self-correct, and that better decision makers (new banks?) will step in to satisfy the demand left untapped by failed banks is hopelessly idealistic. This ignores the concept of absolute power corrupting absolutely. We have allowed private banks to control the lifeblood of our economy: credit. They have been, for many generations, in a position so important that we cannot ever allow them, as a group, to fail. They know this, and are currently holding us ransom. This has nothing to do with economics, and everything to do with human nature. Economists believe the world (at least the free world) is governed by a set of rules that very few of us are ever even educated about. In fact, the rules that govern us are the only ones we're born with, and that is human nature. Economics is still a very poor approximation of these natural rules.

So, given these two highly-controversial arguments, what is The Solution? The entire system must be changed. Mark-to-market accounting, credit default swap regulation, Community Reinvestment Act, and interest rates are merely red herrings. Changing these details does not fix our problem. The only solution is to wean ourselves off a system (commercial banking) that is not accountable for its performance. That can either be done by not using credit as the source of our funding, or replacing the creditors with public servants that we can directly remove in case of abuse. Anything less drastic will only perpetuate our virtual slavery to the banking industry.

Posted at 02:37PM Oct 22, 2008 by Nathan in Economics  |  Comments[0]