Nationalizing Banks is a Bad Idea
The head of the MIT econ dept on why this is such a bad idea. Key points:
- Given that many asset prices are seriously distorted at best, and entirely meaningless at worst, it is arbitrary to declare any financial institution insolvent based on current information.
- If one bank is nationalized, the fear that the next one will be as well will become a self-fulfilling prophecy; clearly nobody wants the US to own the entire US banking system.
- As Lehman has shown the knock-on effects can be devastating; who knows what will happen if based on an arbitrary government decision shareholders, preferred holders, bondholders start getting wiped out.
- He proposes asset insurance as an alternative.
Thoughts?
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