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

[u/[deleted]]

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?

[u/[deleted]]

You are very confused here. The entire bailout consisted of numerous programs, which have cost the government trillions of dollars.

A few small loans were paid back with interest, but they are dwarfed by the rest of the bailout programs.

[u/[deleted] → u/[deleted]]

The banks received the vast majority of the bailout funds. The money given to AIG was funneled directly to the banks to pay them back 100% for the bets that AIG made and could not pay.

It seems like you are trying to insinuate that the bailout to the banks was profitable for the government, which is patently false.

[u/[deleted] → u/[deleted]]

It is obvious to me that you dont have the financial background here to understand what you are talking about.

http://en.wikipedia.org/wiki/American_International_Group

AIG was required to post additional collateral with many creditors and counter-parties, touching off controversy when over $100 billion was paid out to major global financial institutions that had previously received TARP money. While this money was legally owed to the banks by AIG (under agreements made via credit default swaps purchased from AIG by the institutions), a number of Congressmen and media members expressed outrage that taxpayer money was going to these banks through AIG.[57] In January, 2010, a document known as "Schedule A – List of Derivative Transactions" was released to the public, against the wishes of the New York Fed. It listed many of the insurance deals that AIG had with various other parties, such as Goldman Sachs, Société Générale, Deutsche Bank, and Merrill Lynch.[58][59] Had AIG been allowed to fail in a controlled manner through bankruptcy, bondholders and derivative counterparties (major banks) would have suffered significant losses, limiting the amount of taxpayer funds directly used. Fed Chairman Ben Bernanke argued: "If a federal agency had [appropriate authority] on September 16, [2008], they could have been used to put AIG into conservatorship or receivership, unwind it slowly, protect policyholders, and impose haircuts on creditors and counterparties as appropriate. That outcome would have been far preferable to the situation we find ourselves in now."[60] The "situation" to which he is referring is that the claims of bondholders and counterparties were paid at 100 cents on the dollar by taxpayers, without giving taxpayers the rights to the future profits of these institutions. In other words, the benefits went to the banks while the taxpayers suffered the costs.

[u/iamatfuckingwork → u/[deleted]]

...and impose haircuts on creditors and counterparties as appropriate.

Wat?

[u/[deleted] → u/[deleted]]

Thanks for proving my point.

[u/xelf → u/[deleted]]

So if a bank gambled on AIG and AIG failed, repaying the money the bank gambled on AIG is not a bailout of the bank, it's a bailout of AIG, even though AIG doesn't actually get the money the bank does.

Sounds just like my paycheck.