Monday, September 22, 2008

Don't Bail Them Out, Firms Should Be Allowed to Fail

The best regulation of the market is this:

A fool and his money are soon parted.

If you take away the way the market naturally regulates entities you just took the floor out of the free market. Every activity has some risk. We all take risks every day in every aspect of our lives. Risk isn't all bad, because risk also has a chance of coming out OK. We call that reward. Taking away the risk undermines everyting.

The Pattern

The Latin America loan crisis would have broken the market. That is what they said, but I had no exposure. I think the market would have been fine. It was isolated enough. Ordinary Americans didn't have their nut in Latin America. But that was the 80's. While I had no exposure to Latin American loans that went belly up, as a taxpayer I did have exposure to the bailout.

We head to the 90's and the Mexican Peso was going to collapse. Our investment banks who showered money on the Mexican market were going to take a big hit. They argued, again, that the whole market was at stake. I had no exposure to the Peso. Again though, I did have exposure to the bailout.

Now we have another crisis. The talking heads tell us that the whole system is at stake. I have seen this before every decade like clockwork. I have no exposure to Fannie or Freddie, to Leeman or Bear Stearns. But I do as always have exposure as a tax payer.

Let these people fail. They need to fail. They need to be taught a lesson. If this country is going to fork over hundreds of billions of dollars lets start building nuclear reactors so we can be energy independent. Ordinary Americans need infrastucture and energy independence more than they need another Wall Street bailout. We have played this game before, and I am tired of it. And the bailouts just keep getting bigger.

I will have another post talking to the points that government is to blame. That isn't this post. Government has it's dirty hands all over this in may ways. That doesn't mean that these firms should be allowed to be kept afloat on the backs of the taxpayer.

We need Wall Street. We also need Wall Street less than we think. If firms are allowed to fail based upon their bad choices it won't be the end of the banking and finance industries. It will give us new blood though, and it will give them a heavy dose of caution going forward.

Let them fall. The world will not come to an end. Sphere: Related Content

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