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This shows a refreshing perspective. Finally the idea that government bailouts might cause us greater troubles in the future seems to be worming its way into mass consciousness, or at least into some of the more respected mass media. This article is written by Lawrence H. Officer, a professor of economics at University Illinois Chicago, and Ari J. Officer who has a Master of Science in financial mathematics from Stanford.

By continuing to throw money at the banks, the government is on the road to prolonging the recession and effecting massive inflation once confidence is restored and the economy then has too much liquidity. By making money available to the banks essentially for free, the Fed does not guarantee that the banks will lend out the money to businesses. There is no motivation to lend money at low rates when capital preservation (i.e., lack of confidence) is still a leading issue. Rates may be low, but the banks are not going to offer these rates to the individuals and industries that can make the most productive use of them — at least not until confidence returns.

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( 2 comments — Leave a comment )
neptunia67
Dec. 31st, 2008 02:13 pm (UTC)
Yeah, it's bad. I heard last night that GM got $6bn and is planning to give out five-year no interest loans. Bad idea, IMO. How the hell will they pay that money back to the government if they're not getting any interest at all? It's a lose-lose situation. They are desperate to move cars and aren't thinking far enough into the future... it's like getting bit and trying to pet the dog again.
liveonearth
Dec. 31st, 2008 09:20 pm (UTC)
Yeah...running out of oil and throwing billions of money we don't have toward supporting the old energy/transportation paradigm. It's sheer idiocy. We should be throwing these billions toward constructing nuclear power plants and passenger rail and electrical busses.....but we are fools.
( 2 comments — Leave a comment )

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