Our governments have poured our tax money into bailing out businesses that have almost deliberately bankrupted themselves. Like so many others, I think that bailing out banks and other badly managed businesses will make little long term difference - the recession will still happen, businesses will still go under, everyday people will still lose their jobs and continue to struggle to feed their families and hold onto their homes. I feel the bailouts will only prolong this recession.
Granted, everybody who's taken on some form of debt is partly blamable for our current recession. But had the banks not taken advantage of our greed to line their own pockets, had they not taken for granted our ability to repay on demand, had they not over extended their loans excessively beyond the capital invested in them by savers and shareholders then we wouldn't be suffering as much as we are increasingly going to suffer.
There is a fix. A quick one. A harsh one. But one exists: we have to let them collapse; and nobody need lose their homes, their savings or their loans.
We've already, as taxpayers, put a lot of money into the banking system, or should I say into the bankers' pockets, in hope that we can keep them afloat through this recession. The sad thing is, recessions and depressions form part of the natural economic cycle - they happen, they always will happen. They are inevitable because of the way free markets work. This recession is no different to any other. It will happen, it may only be staved-off, but it will happen.
The least costly solution to failing banks is to allow the badly managed ones to be taken over by stronger, better managed ones otherwise they must be allowed to fail.
We can protect the population and businesses from bank failures by defaulting failed banks' assets and investments (all loans to home-buyers and businesses etc..) to tax-payers. Tax payers could then pay-off savers. A fund could be created by selling off the seized assets and by paying into it the returns from seized investments (loan and mortgage repayments along with interest earned from other investments). Tax payers (first) then shareholders and other investors (second) could then be repaid from this fund with any left overs kept by the taxpayer as gratitude for taxpayers' generosity.
By doing the above, savers keep their savings, homeowners keep their homes, borrowers keep their loans, and small businesses with loans wont fail because their loans wont be called-in; job losses will be limited to bank employees and peripheries; and shareholders and other investors will receive back some of their money (after all, all investment are understood to have associated risks).
To be honest, I think shareholders need to remember that they gambled their own money, nobody else forced them to risk it so why should they expect every taxpayer to protect their gambled money. Would shareholders bailout an investor in art who lost his most valuable asset in a fire? Of course not; and neither should taxpayers be expected to owe anything to shareholders of failed businesses. But by seizing failed banks then realizing their assets and investments at least all savers will be repaid their savings, borrowers will retain their loans and loan agreements, shareholders will be repaid some if not all of their investments and some (to most) of a bank's liabilities will be serviced.
It could be argued that letting a bank go bust would affect the value of investments in other markets. It might, but, provided investors know that their investments are at least partially protected in the event of a bank collapse then they will continue to invest; and investments in other areas might increase due to non-banking businesses not failing when banks fail.
As the markets are still collapsing despite bank bailouts, do we have anything to lose by letting banks fail?
Which do you prefer, your investment portfolio, your bankers' portfolio, or your home (and relatives' and friends' homes) and mod-cons? I know which I'd rather save.
That plan again:
- Let failing banks fall,
- Let strong, workable banks buyout failing banks,
- Let the assets and investments of failed banks default to taxpayers,
- Sell-off failed banks' assets and pool the money into a common fund,
- Add to the pool repayments from failed banks' borrowers,
- Pay savers from taxpayers' funds (transfer their accounts to good banks to strengthen them),
- Repay taxpayers, shareholders and other investors using the pooled funds,
- Lastly, give any leftover money in the fund to taxpayers.
It's workable and would be less costly or only as costly as the current taxpayer based bailouts; and fewer jobs and homes will be lost when banks crash.
Banks created this mess so why should we feel guilty about letting them fail? Why should we sacrifice our own livelihoods and property so that bankers can benefit? We shouldn't and we don't have to sacrifice ourselves for their benefit.
A fix exists - let them fail, seize them, pay the savers, realize the assets, receive loan repayments, repay shareholders, service the debts and keep the excess for taxpayers.
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