Bailouts are not part of capitalism. IF we want to have a healthy economy, it's imperative-- not just "right" or "good", but imperative-- that uneconomic businesses be allowed to fail.
That's what clears the way for the guy who has a better idea who knows the market better and who can deliver value better.
I say this because sometimes people talk about bailouts as a failure of capitalism. It is not. In capitalism, government does not support or hinder businesses from doing business. Government's role should only be to protect rights (eg: so if someone ships a defective product, government provides the courts and laws to hold them accountable for the damages.)
When government is picking winners and losers it's not capitalism, and when they are propping up losers-- like the banks-- it's really not capitalism.
And no, we wouldn't have had a worse situation if the banks had been allowed to fail-- that's the rationalization. Strong banks like Wells Fargo would have grown and absorbed the remains of the dead banks. A lot of people got a lot of money out of the housing crisis because the government stepped in and didn't let them lose it--- thus the bad actors were not punished in the way capitalism punishes bad actors: with bankruptcy.
It's not bailouts that are the failure of capitalism. It's the conditions that bailouts ameliorate that are the failure. Namely that the process of destruction that takes down "losers" can, in some cases, destroy "winners" as well.
The best example of this is the "banking panic" (which is what we had in 2008):
Because all fractional-reserve banks require customer confidence in order to operate, if customers lose confidence in the banking system as a whole, that loss of confidence will destroy even healthy banks.
FDIC insurance was never questioned in 2008 and therefore customer confidence/common depositors were never threatened. Investors who had purchased toxic assets were threatened. Banks who held toxic assets on their balance sheets were threatened. Bankruptcy would have been extremely painful for everyone, but it would have punished the losers and rewarded a new generation of risk takers. It also would have led to a stronger recovery than what we have now, which is a zombie-like market controlled by central bank monetary policy and disconnected from free floating macro economic conditions.
That's what clears the way for the guy who has a better idea who knows the market better and who can deliver value better.
I say this because sometimes people talk about bailouts as a failure of capitalism. It is not. In capitalism, government does not support or hinder businesses from doing business. Government's role should only be to protect rights (eg: so if someone ships a defective product, government provides the courts and laws to hold them accountable for the damages.)
When government is picking winners and losers it's not capitalism, and when they are propping up losers-- like the banks-- it's really not capitalism.
And no, we wouldn't have had a worse situation if the banks had been allowed to fail-- that's the rationalization. Strong banks like Wells Fargo would have grown and absorbed the remains of the dead banks. A lot of people got a lot of money out of the housing crisis because the government stepped in and didn't let them lose it--- thus the bad actors were not punished in the way capitalism punishes bad actors: with bankruptcy.