Thursday, January 22, 2009

Relearning the lessons

A number of serious people are arguing that the best -- and maybe only -- way out of the current financial crisis is the nationalization of some of our largest banks. Things are that desperate.

We've reached a point, they say, where Citibank, for example, is actually insolvent, but is still afloat with the belief that the US government will and must step in because it is too big an entity to fail. As a result, the stock price has not collapsed; however, this means that Citibank will have to be propped up at some point by the Treasury because the other option -- that it falls off the cliff -- would be catastrophic.

One point I feel strongly about is that no business should be "too big to fail." The size and span of corporations should be limited so that their power to negatively impact our economy is greatly diluted. Greed has put us at the mercy of the conglomerate.

My second thought is that this is another death knell in the complete faith in unfettered free markets, a movement that returned under the presidency of Ronald Reagan. By 1980, the lessons of the Great Depression and its causes had been lost -- or conveniently forgotten by those looking for quick riches -- and so some of the checks and balances instituted by the New Deal were abolished, and then things accelerated under George W. Bush. And here we are, learning the same lessons again.

Finally, at what point do I pull my money out of the bank and stuff it in the mattress?

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