Our government officials decided long ago that the government would actively prop up the financial sector. The Federal Reserve, our bankruptcy laws, our tax code, the FDIC, Fannie & Freddie — these are all positive government efforts to promote financial institutions. More obviously, Savings & Loans bailout, Bear Stearns bailout, the AIG bailout, the Fannie & Freddie bailout, and TARP were all part of that same project.
I understand why so many people believe we need to prop up big financial institutions, but I’m pretty unconvinced. For one thing, we can have finance without these large intermediaries.
They’re called “intermediaries” because they are middle men. They take your savings deposit, and lend it out to me in form of credit card debt. Without the bank, conceivably you could loan me the money for me to buy the Jet Ski. Obviously, there are all sorts of reasons to have an intermediary. But as with many intermediaries, financial intermediaries are made less relevant by the Internet.
Alex Goldmark at the web journal Good writes:
My favorite detail, of course, is that Big Banks were using the SEC to block the entry of these innovative competitors. Ah, consumer protection!
This is one reason I call the bailouts “pinstripe protectionism.” It takes either an unimaginative mind — or a vested interest — to assume that without the current order, our economy would cease flowing. Turns out, the world might keep turning without the Masters of the Universe.
