Personal tools

Argument: $700b plan bails-out risk-takers who need to learn lesson

From Debatepedia

Jump to: navigation, search

Parent debate

Supporting quotations

Mark Stanford. "A Bailout for All Our Bad Decisions?". Washington Post. 26 Sept. 2008 - "For 200 years, the "business model" in our country has rested on a simple fact: that while one may reap rewards from taking risks, one should also be prepared to face the consequences of those risks. Some of the proposed actions with regard to the credit market turn that business model on its head -- absolving those who took too much risk, or bought too much house, from the weight of their own choices. If Congress passes the proposed bailout, we will be destined to have far greater problems in time, leaving those who are prudent in their finances to foot the bill for those who are not."

"We Need Another Choice". Daily Kos. 23 Sep. 2008 - after the Savings and Loan crisis, the Enron debacle, then this mess, it's clear that the investment community needs to get its "creative accounting" house in order -- to bail them out yet again would not encourage that.

GOP Rep. Mike Pence - The Administration’s request amounts to the largest corporate bailout in American history. Congress should act, but should act in a way that protects the integrity of our free market and protects the American taxpayer from more debt and higher taxes...To have the freedom to succeed, we must preserve the freedom to fail. Any solution to our present crisis must preserve our essential economic freedom.[1]

Daniel Mitchell, a senior fellow at the Cato Institute. "Bailout Would Impose Needless Economic Damage". Real Clear Politics. 1 Oct. 2008 - The bailout rewards executives and companies that made poor choices. Unfettered markets are the best generator of prosperity because people have incentives to make wise decisions. If an entrepreneur figures out a way to provide a valued good or service to others, he can become wealthy. But if that entrepreneur makes a mistake, he will suffer losses and maybe even bankruptcy. If investors put money into a well-run company, they can increase their wealth. But if they put their money into a poorly-run firm, the opposite can happen. In other words, market forces encourage people to make smart decisions so they can prosper. But it is equally important that people bear the consequences when they make wrong choices.

The bailout will encourage imprudent risk in the future. The debacles at Fannie Mae and Freddie Mac, as well as the savings & loan failures from the late 1980s/early 1990s, are compelling examples of the negative economic consequences that occur when profits are privatized but losses are socialized. Faced with this perverse incentive structure, people engage in riskier behavior (analogously, if you are in Vegas, and somebody else is going to cover your losses, you obviously have an incentive to make bigger bets). A bailout would extend this risky behavior to the whole financial system, if not the entire economy.

Jeffrey A. Miron. "Commentary: Bankruptcy, not bailout, is the right answer". CNN. 29 Sept. 2008 - The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.

"The Bailout Bust". The New York Sun. 30 Sept. 2008 - Everyone is talking about how to revive the bailout plan, but at a certain point, the clamor from the financial industry or the stock market for a bailout is like a child crying in a crib. The parent can stay at the side of the crib rubbing the child's back and singing lullabies, but that's a recipe for staying up all night with a crying child. Eventually the parent has to leave the nursery and shut the door. It's time for the government to do that to Wall Street.

Problem with the site? 

Tweet a bug on bugtwits