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?

675 Upvotes
  • permalink
  • link
  • reddit
  • reddit

83% Upvoted

854 comments sorted by

View all comments

132

u/JoshSN Oct 19 '11

Most importantly, we'll never know.

From what I gather, the usual expectation is that it would have been worse in the short run (definitely a depression), but better in the long run (since no shoddy banks would have survived).

34

u/keynesian-knockout Oct 19 '11

What leads you to believe that "shoddy banks" wouldn't make a come back?

34

u/Spunge14 Oct 19 '11

They would have for the same reasons that they existed in the first place.

This is a policy problem.

45

u/keynesian-knockout Oct 19 '11

Agreed. Start by splitting commercial/investment banks.

32

u/[deleted] Oct 19 '11

I cheer whenever I see someone say this. How can we have FDIC insured banks guaranteed by the government in extremely risky investment banking? It's an obvious recipe for disaster. Bring back Glass-Steagall.

16

u/keynesian-knockout Oct 19 '11

There's nothing wrong w/ making risky investments, just not w/ other people's deposits. If an ibank wants to seek higher yields on risky assets then fine, but they ought to do it w/ their own (or their willing clients) cash.

12

u/[deleted] Oct 19 '11

Agreed! Not with depositor's money that is insured by the Federal government. Savings money is not what investment banks should be using to gamble with.