Sometimes it can come across that all I do is complain about everything without offering something positive or constructive about a solution to a current problem. Well, I'm not really going to offer something positive here myself but offer a link to an article by Jeffery A. Miron who is an economist at Harvard University (not that being form Harvard makes his argument carry more weight.) He argues that the best thing we can do is not bailout these companies, but rather let them declare bankruptcy.
Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.
Now I'm not saying that we should follow Libertarian economic principles, but rather here is a Libertarian who is making a good argument for returning to the earlier economic regulations while allowing the market to punish those who screwed up in the hopes that they won't do it again.
The Rational Moderate
2 comments:
I agree completely with the idea of returning to more sound economic policies. However, I am not sure he is pointing his finger at the right parties as far as punishment. Who do we go after? The politicians who created the environment which allowed this problem to occur or the companies who took the governments lead with the understanding it was all guaranteed by the government. By his own admission the government encouraged these companies to embark on this sub-prime escapade. Shouldn't they be held responsible for their role in all this? Don't get me wrong, the company excs. are not blameless in all this as they were the ones who went along with the government without properly managing the risk in their portfolios.
The real problem I have with the ideas presented in the article is the bankruptcy idea. This will punish the wrong people. He even says the shareholders would get wiped out if the companies go bankrupt. Imagine the effects on pension plans, 401Ks, IRAs, etc. Allowing all of these major corporations to go belly up would destroy the financial well being of millions of people. Not that there are not already millions effected by the economy but the number would be far higher if bankruptcy was the path we took. Not to mention that just because the company is now owned by the creditors will it be more effectively run and this path also generally leads to massive layoffs. I site the airline industry and Leman Brothers.
We should return to more economically sound lending practices, there is no doubt about that. However, lets not punish the wrong people with bankruptcy.
That's a good point. Perhaps this is too knee jerk a reaction to the idea of the companies not being punished at all as the current bailout proposals, ahem, propose.
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