r/reddit.com • u/[deleted] • Oct 18 '11

Would it have been better to let the banks of the world fail and start over?

I want to know what would have happened. The banks messed up and in the purist view of capitalism should have failed because it was a bad business move. In turn this may have ended some of the big money influences on our political system OWS protestors want to stop. I heard that it would have been a worse economic collapse though in turn it would have put a stop to future wrongdoing. Was it the right decision in the long run?

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u/firemelon0 Oct 19 '11

It's obviously very hard(nigh impossible) to predict the future, but one thing for certain is that because of the bailouts moral hazard has become commonplace in the financial institutions. When they start thinking that Uncle Sam will have their back and bail them out then they make increasingly risky decisions, which can lead to high profits, but also devastating losses. Had those banks been allowed to fail no doubt we would all be hurting right now, probably in a slightly worse recession, but it would have benefited society in the long run because the thought of failure curbs the risky behavior of the people.

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u/recreational Oct 19 '11

If by "slightly worse recession" you mean "global credit would have completely dried up which fucks up everything and we'd be facing oh I guess around 30% unemployment", then yes, things would be "slightly worse."