Bank Bailouts: Were They Needed?


As the banks crashed in 2008, George Bush’s government took action to bail them out, and his emergency measures continued under President Obama in 2009, and beyond, as both parties, at least tacitly, approved of the efforts.

During the Republican primary debates in 2011 and 2012, all of the conservatives criticized the bank bailouts, including Congresswoman Bachmann who categorically opposed all government loans. Congressman Ron Paul said he would not give any assistance to any private firm. He mocked the bailouts saying: “They thought the world would end, if we did not bail out the banks.” He was concerned, because he said the Fed even sent five billion overseas to bail out foreign banks.

Gov. Huntsman opposed the bailouts, arguing we spent trillions, and have nothing to show for it. Sen. Santorum opposed the bank rescue, noting he would have done nothing about the meltdown. He said the financial institutions should have been allowed to go bankrupt. Why prop them up through government, he asked? Santorum asked Gov. Romney why he supported the Wall Street bank bailouts, if he believed in capitalism. Why not let destructive capitalism work, he asked?

Gov. Romney felt President Bush had to take action to keep all banks from closing, but characteristically contradicted himself, saying: “I didn’t want to save Wall Street banks.” Romney also said if Europe had a financial crisis, he wouldn’t give a blank check, or go over there to save their banks, but then he contradicted himself again, saying he would take action, if all of the economies of the entire world were collapsing, because we would need to prevent a contagion from affecting U.S. banks.

While the banks survived thanks to the bailouts, we have no way of knowing for sure what would have happened if the government had done nothing. At the very least, several major institutions would have closed their doors, and it is likely the entire economy would have sustained major seizures. Instead of 10% out of work, the country may have confronted a 25% unemployment rate, and people would have been asking why no intervention was taken.

In retrospect, the bank bailouts were appropriate to get the big institutions through their perilous moment, provided the loans extended by the government are now fully repaid, with interest.

Since the big banks were “too big to fail,” the government made the correct decision to save them, but now that the crisis has ended, it’s time to break them up, under new antitrust laws, so if we face a similar situations in the future, we will be able to let much smaller downsized institutions simply go under.

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