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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: shadowman who wrote (7597)	11/24/1998 5:42:00 PM
From: Liatris Spicata	Read Replies (2) \| Respond to of 9980

Dennis- OT- In general, governments should not be in the business of "bailing out" (subsidizing, capitalizing, guaranteeing or what have you) banks any more than they should automobile manufacturers. I admit I am not particularly knowledgeable about banking, but the S&L crisis of the '80's was the result of a massive government screw up for which a naive American public failed to identify the main culprit. Banks should be permitted to fail, just as any other business. BTW, the bank that started the bank crises of the '30's, the Bank of the United States, eventually paid its depositors over 95 cents on the dollar, as I recall. S&L's always seemed to me to be a preposterous business, even before I was concerned about liberty. It takes no genius to figure out that borrowing short and lending long is stupid, but that's how government set up the industry. But the system worked appeared to work for some decades, as the costs were always hidden from the average observer, and the regulated industry loved the deal the government gave. But the S&L goose was probably cooked when regular folks got tired of their 5% interest rates (S&L's "success" had something to do with Depression era folks being wary of equities etc. and preferring to trust "government guaranteed" banks, even if they operated on an idiotic, politically motivated basis. Besides, they gave away great toasters, since the government declined to let them compete on any other basis). In the 1980's banks were partly de-regulated, but, preposterously enough, they were in many cases operating under some form of government guarantee for depositors. So, savers went to their local bank that offered the best toaster or the slightly higher interest rate, instead of concerning themselves with the financial integrity of their bank. This situation encouraged the yoyo banking practices that resulted in a massive financial failure. Although government should never have been in the banking business to begin with, by the time the crisis hit, it may have been constrained by contractual obligations which probably should have been honored. I realize an expert would pale at my rendition of the History of American Banking in the 20th Century, but I think what I've said is largely true. The important thing is that government should not subsidize or protect the banking industry, except insofar as it polices force or fraud. Banks should be able to fail, and the owners and depositors take the consequences. Insidiously, in recent years we've had the situation where small banks are allowed to fail (with government protection of various interests) but big banks get bailouts. That is hypocritical, works against entrepreneurial interests, and is wrong. Larry