No. of Recommendations: 13
What do you think would have happened if the Fed had done nothing?
These are straw man arguments. Waste of time. Here's What the Wall Street Journal was saying
last Saturday :
But if SVB was doomed, it is better to let it fail than have the government bail it out, despite what one hedge-fund lord suggested this week. Didn't we learn from the 2008 crisis that the feds' rescue of Bear Stearns encouraged everyone to believe that Lehman Brothers would be rescued too?
There doesn't appear to be any obvious systemic risk to the financial system from the SVB and Silvergate failures, and market discipline needs to prevail unless there is danger of a larger financial breakdown. SVB investors and customers benefited from the government's easy money. Why should they also benefit from a government lifeline after taking risks with that easy money? Straw man? I don't think so. I saw this viewpoint echoed in several places, it was a common theme among the Austrian economists who apparently still haven't learned the lessons of 1930.
Or as before the emergence of the Fed over a hundred years ago I guess I can forgive the ignorance of some of the actors in 1930, but to continue the adherence to a doctrine so fundamentally destructive a century later is head-scratching, to say the least.
Liquidate labor, liquidate stocks, liquidate real estate,' Treasury Secretary Andrew Mellon may or may not have told Herbert Hoover in the early years of the Great Depression. 'It will purge the rottenness out of of the system.' This is what has since become known as the 'Austrian' view (although most of its modern proselytizers are American): economic actors need to learn from their mistakes, 'malinvestment' must be punished, busts are needed to wring out the excesses created during boom times.
Within the economic mainstream, there is some sympathy for the idea that crisis interventions can create 'moral hazard' by bailing out the irresponsible. But the argument that financial crises should be allowed to wreak their havoc unchecked has few if any adherents. As Milton Friedman put it in 1998: https://hbr.org/2013/09/why-we-didnt-learn-enough-...In other groups I have used Berkshire's immense cash hoard, rolling over mostly with short term liquidity as an example of how this sort of risk
should have been managed . That it wasn't by some supposedly sophisticated bankers pains me, and I hope that the shareholders
will be wiped out and the accelerated bonuses clawed back, but I don't see the point in punishing 'innocent' bystanders, even if they are not as perfectly innocent as one might hope.
