Like many before him, he suggests that the best course of action to the financial crisis would have been to let companies fail. When the dust cleared, we would have been left with a stronger economy and a sharper recovery. Instead, we’re essentially dragging the destruction and reconstruction over an extended period of time.
JG makes some great insights:
“We acknowledge that a stiff whiskey can get the drunk to stagger to his feet and make it
a few blocks, but it does not seem like a successful long-term strategy to cure him of
drunkenness.”
and more…
“So, we know a lot about the powerful resilience of economies. They are not such delicate
flowers that we need to protect every foolish bank or be faced with wrack and ruin.”
and finally…
“If we had let all the reckless bankers go out of business, our houses and our
factories would not have blown up, our machine tools would not have been carted
off to Russia, and we would not have machine gunned any of our educated
workforce, even our bankers! When the smoke had cleared, those with money would
have bought up the bankrupt assets at cents on the dollar, and we would have had
a sharp recovery in the economy. Moral hazard would have been crushed, lessons
would have been learned for a generation or two, and assets would be in stronger,
more efficient hands. Debt is accounting, not reality.”
I think that last sentence is very important. We have allowed ourselves to be burdened by debt. However, debt is easily dealt with if we are willing to accept a short period of pain. Instead we toil to repay excessive debts that should have been allowed to restructure via bankruptcy courts.
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