Should We Have Let the Banks Fail?

Interesting article about Iceland, which let its banks fail instead of bailing them out. Creditors for the banks had to take their losses and the taxpayers didn’t have to foot the bill. Iceland’s government took a hit and their economy went way down, but they’re apparently on their way back up.

Ireland, on the other hand, has a government that, like the US, wants its taxpayers to pay for the banks’ criminal, stupid, and/or reckless behavior. Iceland’s public debt, while high, is still manageable. Ireland has taken on debt that is 12 times – 1200% for those who like big percentages – of its GDP. This is known in economic circles as “unmanageable.”

While the USA has a big enough GDP to absorb the calamities of 2007-2008, will it be able to manage things if there is another banking crisis? It might happen… Click that last link for a paper on how the underlying fundamentals of the banking system remain reckless, stupid, and, yes, criminal.

3 thoughts on “Should We Have Let the Banks Fail?

  1. asian

    i don’t think this question is fitting for people who don’t have any money their answer would obviously be to let the banks fail which makes sense to them, they don’t have money in the banks these are the same people who complain that a store needs to charge a price for stuff to make profits and stay alive but when it comes to buying random crap at wal-mart and/or the mall have no qualms at all about swiping that credit card or spending then to later complain about being poor due to lack of budgeting

  2. deanwebb Post author

    But from a public policy view, bailing them out only impoverishes the taxpayers further and does nothing to prevent another similar collapse from happening. We’ve got enough food to feed everyone, but not enough luxury to give everyone a yacht. The fact that capitalists are now hijacking the government to get us to pay for their yachts is why I believe we should have let the banks fail.

    Lewis Lapham said recently that capitalism is on its last legs – pretty much that it’s been on life support since 1930 – and that it, like other systems before it, is coming to an end. We do not yet know what will replace it, but one wonders if we should continue clinging to a corpse.

  3. Stephanie Myers

    This sounds like something we should have done. However, I believe most Americans wouldn’t understand this process and ultimately believe that letting the banks fail would be ‘mean’ and ‘un-American.’ It’d be hard to get support from the population. Most people don’t know that the banks are so corrupt, etc. That or Americans wouldn’t see how letting the banks fail will ultimately help us because they’d be too focused on the economy getting better immediately. Americans is kinda dumbs sometimes. D: <–Sad face

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