The Head Bailout Monkey making Austrian noises!?!:
<<As a central banker, I can conceive of rare situations where events may require that the FDIC and other governmental resources be used to temporarily sustain a failing institution pending its managed liquidation. But indefinitely propping up insolvent intermediaries is the road to stagnation and substantial resource misallocation, as recent history attests. Unlike brick-and-mortar enterprises, financial intermediaries can expand and contract very rapidly. As weak intermediaries contract, the markets can, and do, quickly replace the profitable services of the displaced intermediary.
Indeed, if the government protects all creditors, or is generally believed to protect all creditors, the other efforts to reduce the costs of the safety net will be of little benefit. The implications are similar if the public does not, or cannot, distinguish a bank from its affiliates. As financial consolidation continues, and as banking organizations take advantage of a wider range of activities, the perception that all creditors of large banks, let alone of their affiliates, are protected by the safety net is a recipe for a vast misallocation of resources and increasingly intrusive supervision.
In conclusion, let me state the obvious. The purpose of banking, finance, and intermediation is to facilitate the production and trade of goods and services. Standards of living rise when the cash flows from obsolescent, low-productivity capital are employed to finance newer, cutting-edge, technologies--the process that Joseph Schumpeter many decades ago labeled "creative destruction." >>
federalreserve.gov
What a joke! It was his bailout of LTCM (and banks in 91 and mexico and market in 87, etc, etc) that got us in this whole mess to start with. UFB |
