The fossil record indicates that there have been various mass extinctions in earth’s history. Of course, the most famous general extinction is that of the dinosaurs. There are various theories as to why these extinctions took place, but the basic idea common to all is that conditions changed in ways that made survival impossible-at least for the species that perished. This left space open for other species to fill the newly emptied niche. For example, some have claimed that the death of the dinosaurs opened the way for the rise of humans.
Now, to the obvious metaphor. The companies that are failing are, obviously enough, like the dinosaurs. Once, they were powerful, successful and dominant. But, conditions have changed and they are dying off. Unlike the dinosaurs, they have largely contributed to their own demise.
Trying to save these companies could, if the analogy works, be like trying to save the dinosaurs from extinction. If so, it would make little sense to dump resources on these dying behemoths. Naturally, the analogy can be countered-there might well be some important differences between dinosaurs and such companies (for example, dinosaurs are regarded as cool and people really like dinosaurs-no so for the failing companies).
To push the analogy even further, perhaps it can be a good thing to let these companies fail. Just as the death of the dinosaurs opened the way for the rise of the mammals, the death of these failing companies can open the way for newer (and hopefully better) companies. While it will be ugly for a while with all those rotting carcasses lying around, things will (one might argue) improve.
There was no possibility for dinosaurs to avoid their extinction. And no one there to save them if they could be saved. I assume they sensed no element of impending disaster prior to their extinction.Whatever cataclysmic event caused their disappearance eliminated most of the then extant life forms.
There is a chance, however, and uncertain it may be, that the demise of banks, whatever their role in the current economic crisis, can be prevented.
Yes, if the banks fail, life on earth likely will not disappear, but it is possible that it will be changed in negative ways that we cannot yet imagine. Having evolved a bit further than the dinosaur, we can recognize dangers here, that no one, certainly not Washington politicians who operate by the seats of their economic ideologies, can calculate. Can they know if those will be “rotting [bank] carcasses” you’re referring to or the “rotting carcasses” of individual lives and, yes, even societies worldwide? Can we?
It’ll be interesting to see if we face these problems, or if we act like the dinosaurs, and simply watch what happens happen.
…or we could be helping our way to economic extinction by rewarding blatant failure. Funding a failed competitor sure doesn’t help the entities that were doing things right.
It’s all about “equality”, not quality. We don’t want anyone to feel badly–ever. No matter how much they fail or bring misery on themselves (or others). If we want to be good citizens of the Earth, we MUST see all points as having equal value…right?
Unlike the dinosaurs, we have the capacity to witness the horrors that may befall us. But I doubt that anyone actually knows their scope , or knows the way out , or knows the consequences of taking any particular approach. Many claim to.
It seems we’re facing more than simply a question of “moral hazard”. I’m as p*d as the next guy at the banks, at politicians of both parties–don’t presume to be able to ID the party responsible for this– at those granted sub-prime loans and those who sought them. I’m “p*d at the greed”. I’m baffled by the average citizen who lost track of his/her financial compass over the last 20 years or so. X number of credit cards, all maxed out. Prioritizing HBO cigarettes and beer above real family needs.
The “moral hazard” horse left the barn a while back. Speaking in possibilities, not in absolutes, I’d prefer preventing the possibility of a failed banking system (and perhaps a failed world economy) to what I imagine might be the possible consequences of those failures. Personally, I don’t think this is the time to sit back and chew an angry cud of ideology and “moral hazard”.
Wow, I almost agreed with everything you said Biomass2. My only point of contention is there must be some failure of the banks. The economy, at the moment, is having a hard time finding a bottom because of all the manipulation by the government. When it finds the bottom we will have an up. The government needs to back away a bit and let things work themselves out. Most of, notice I said most of, the spending is just making things worse. Investors are not going to invest until they figure out how hard Obama is going to pilfer them. That’s why there is minimal investment.
“My only point of contention is there must be some failure of the banks.” I agree with you. And depending on how you define the terms “some” and “bank failure”, there have been “some” “bank failures”–in fact there have been “many”–depending on how you define 🙂 that word :
http://www.thestreet.com/story/10467038/1/new-bank-failures-week-of-march-1.html?cm_ven=GOOGLEN
http://en.wikipedia.org/wiki/Bank_failure
Would the following qualify as” government. . . back[ing] away ‘a bit’ and let[ting] things work themselves out”? What if the FDIC no longer insured depositors? Would that solve the problem? Or might that cause a run on the banks, an increase in hoarding, a further drop in consumer spending, a decrease in hiring and production, etc. . .?
That might be the final step in destroying Glass-Steagal. . . and possibly more and there seem to be starkly conflicting opinions among people more qualified than I (and, I’ll bet, you) about the Act:
http://en.wikipedia.org/wiki/Glass-Steagall_Act
Can we at least admit this? Whether you’re Buffet, Krugman, Geithner, or Summers, or Limbaugh 🙂 or one of the lesser stars of the market gurus and economo/political universe , you can’t know the bottom until after it’s been reached — until an unspecified amount of time afterwards.
Is this an apt analogy? I’m a poor swimmer. I’m 6 ft. tall swimming in water of unknown depths. Can I assume that, should something go wrong, I could always hold my breath until I reach bottom and kick off the bottom to reach the surface for my next life- saving breath? Or should I have take every step possible to ensure my chance of survival? My opinion: Making incorrect assumptions about the depth of a bottom and the outcomes of reaching it ‘might’ have consequences as serious as if there were actually no bottom at all–just an endless worldwide economic abyss.
kernounos: I was just reading this thought it was apropos to my reply to your previous post and thought you’d be interested. I referred then to Krugman, Geithner, et al and what they don’t “KNOW”:
http://krugman.blogs.nytimes.com/2009/03/03/zombie-financial-ideas/
A lot of the comments there are interesting. Note particularly Krugman’s statement about Treasury (under Geithner): “. . .are they stupid, or do they think we’re stupid?” Krugman v Geithner v Bernanke v ???
There are obvious disagreements among liberals. —–even if we put aside for the moment the possiblity that Krugman’s just PO’d that Obama didn’t choose him (Nobel Prize and all) to be his economic advisor or Sec’y of Treasury. 🙂
And I agree with some of the comments over there that the answer to Krugman’s question is that they’re both stupid (in the sense that based on economic abstractions they cannot possibly be certain where this is all leading).
Neither, I would argue, can conservatives be certain. The main difference seems to be, from all that I’ve seen, that the conservative solution–and there seems to be only one–is based on “the free market” which, correct me if I’m wrong, doesn’t exist in this world in a pure enough form–just another abstraction– to reach the absolute conclusions some would like us to believe can be derived from it.