Pick Your Poison

The Bernanke/Geithner approach to not dealing with the financial crisis amounts to a hideous public subsidy of the global transactional class, a transfer of wealth from American taxpayers to the institutional investors who hold the bonds and derivative obligations tied to the zombie banks, AIG and the GSEs. All of these companies will require continuing cash subsidies if they are not resolved in bankruptcy.

via Stress Test Zombies: Not Too Big To Fail? Tough Tootsies Little Banks! | The Big Picture.

This is sadly true. However, the “institutional investors” include a lot of pension funds and insurance companies. The alternative to taxpayer bailouts may be reductions in pensions and annuities, as well as increases in insurance rates. Everybody gets smacked, which is why they refer to it as systemic risk. Still, I agree that the better course is bankruptcy, but we probably don’t want to see them all at once! All the government is doing is slowing things down, which may or may not be a bad thing. Is it worth the price? Who could possibly know? This financial crisis is creating a boxcar load of questions for economists, financeers, and political scientists.


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